Japan in an institutional quagmire: international business to the rescue?

In the early postwar period, Japan crafted its own set of institutions to catch-up in industrialization under the favorable external conditions of Cold War geopolitics (the then-prevailing set of outer institutions and circumstances). The United States largely tolerated Japan's dirigiste economic policy and protectionism. Japan's successful catch-up, however, soon made its existent institutions obsolete, even deleterious to the economy, and incongruous with the altered outer set of institutions promoted by the post-Cold War United States. The Japanese markets are now open than ever before to foreign multinationals who increasingly serve as vital players assisting the host to restructure its dual economy. Yet, Japan's entrenched domestic politics is hindering the wholesale reform of inner institutions in a path-dependent fashion.