MSNBC/Washington Post has this article on the new hope for the Japanese financial system. 

The Japanese may finally be ready to treat the Japanese disease—which, if they succeed, would be a good thing for the United States and the world.

...JAPAN’S ECONOMY has sputtered in and out of recession for a decade without providing much support for the rest of the world. What meager growth it has achieved has depended on massive government budget deficits; the national debt has ballooned to about 140 percent of gross domestic product from 65 percent of GDP in 1990. But most Japanese still have jobs and live comfortably. They have resisted measures that might improve the economy in three or four years but, in the short term, might make it worse.

...“When you start ripping these companies up, unemployment and bankruptcies will go up,” says economist Robert Dugger of Tudor Investment Corp. At about 5 percent, unemployment already is more than double its 1990 level of 2 percent.

I went through undergrad business school in the early '90s and as many pundits have since noted, within the business school faculty, there was a pervasive awe / fear / loathing of the impending Japanese ascendency  (these are folks who went through their grad b-school's in the mid/late 80s).    The deep, incestuous relationships between Japanese banks and businesses were seen then as a new (superior) form of capitalism & financial engineering that government policy in the US should try to incent domestically.  

This was codified in a minor low intensity conflict between academic management department (who, curiously, often consisted of folks who had never managed a company in the midst of strategic flux) and the finance department over conflicting answers to the perennial question of "what is the goal of a firm".     Most financial types were pretty straightforward that the answer was "to max shareholder value."  

However, in the light of many of the current management theories, the LBO raiders of the day were seen as just about the most evil thing that could happen to US markets (thinking back to any of the books Lester Thurow published back then).   Those folks were accused of "overly liquidizing" corporate assets while the prevailing wisdom was that capital needed to be MORE closely integrated to the firm.

Now, of course, we're glad that the nakedly profiteering LBO-meisters in the US existed to inject this liquidity into our markets.   Even more directly, we're now advocating that Japan needs to behave more like us -- or, more accurately like we were in the '80s.   And now, Japan appears to be taking the first steps towards willingness to take that advice.

For me, watching first hand the rise and fall of the "National Competitiveness is aided by Government-Encouraged Firm + Capital illiquidity" meme was one of my earliest real experiences with seeing a bunch of technocrats try to take on the wisdom of the market.

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UPDATE: Found this great article by Brink Lindsey (of Against the Dead Hand fame) on this subject. It's full of pointed "then and now" quotes. Lindsey concludes:

The revisionists claimed to have discovered a new and superior form of capitalism: the Japanese capitalist developmental state. Today, however, the Japanese model is better known as "crony capitalism," and its manifest failures are causing economic pain and political turmoil up and down the Pacific Rim. The revisionists argued that the United States was doomed as a leading economic power unless it adopted Japanese-style practices. It didn’t and is now enjoying spectacular and unrivaled prosperity.

In short, the revisionists’ doom-and-gloom prophecies could not have been more wrong. All their errors trace back to a common source: an inability to understand and appreciate the power of free markets. Suffering from what Nobel Prize-winning economist F. A. Hayek termed the "fatal conceit,"⁸⁷ they believed that a handful of government planners could outthink millions of private decisionmakers—could pick "strategic" industries, allocate capital in defiance of market signals, and prop up the stock market and real estate values. Like so many others before them, they prided themselves as sophisticated realists, yet in fact their faith in bureaucratic miracles was hopelessly naive. Only a few short years were needed to burst their bubble.

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