How on earth did Japan get itself into such trouble? Iida Hideo, a finance lawyer, describes what he calls the Boiled Frog syndrome: «If you drop a frog into a pot of boiling water, he will jump out immediately and be saved. If you put him in warm water, he feels comfortable and does not notice when you slowly raise the temperature.» Before the frog knows what is happening, it's cooked.

The Boiled Frog syndrome is what comes of failing to change as the world changes. Techniques such as tobashi keep the water lukewarm, hiding disastrous mistakes. The policy of shoring up insolvent firms and wasteful government agencies at public expense creates no incentive for those in charge to rethink their mistakes. Meanwhile, the government croons the public to sleep with reassuring lullabies about Japan's unique form of government by bureaucracy, and its superiority over the degenerate West, exemplified by Sakakibara Eisuke's book Japanese-Style Capitalism as a Civilization.

Death at a slow boil is also behind the sad condition of Japan's rivers, mountains, and seashores, as well as the landscapes of towns and cities. Ill-planned development, monuments, and bizarre public works have ravaged all these parts of the national heritage-but the heat doesn't scald, because the propaganda of «ancient culture» and «love of nature» continues to lull the public into blissful unawareness.

Radical change will come only when conditions have grown completely intolerable, and in Japan's case that day may never come. To put Japan's financial troubles into context, we must remember that it remains one of the wealthiest countries in the world; the bankrupt banks and deflated stock market are not going to deprive most people of their television sets, refrigerators, and cars. From this point of view, Japan remains a reasonably comfortable place to live.

In using the word «comfortable,» I would never suggest that Europeans, Americans, or most middle-class Southeast Asians envy such a lifestyle. For the Japanese, cramped low-quality housing, lack of time for private life, and a degraded environment in cities and countryside are so all-pervasive that most citizens can hardly imagine an alternative. Goals set in the 1950s and 1960s – to own television sets, toasters, and cars – froze to where even now they define the limits of Japanese modernism. As long as people get to keep their toasters, very few will complain if it becomes a little harder to buy a house, or their companies make more severe demands on their time, or their surroundings get a little uglier. Such things seem such a normal, even predestined and unavoidable part of life that it is hardly worth thinking about. Japan has trained its population to believe in the old military virtues of hard work and endurance. Hence people will bear hardships without necessarily asking how they might avoid or decrease them, especially if the hardships are quiet in the coming.

The best word to describe Japan's modern plight is Chuto Hanpa, which means «neither this nor that» – in other words, mediocrity. Stunning natural scenery exists, but rarely does it truly uplift the heart, for somewhere in the field of vision the Construction Ministry has built something hideous and unnecessary. Kyoto preserves hundreds of temples and rock gardens, but a stream of recorded announcements disturbs their meditative calm, and outside their mossy gates stretches one of the world's drearier modern cities. The educational system teaches children facts very efficiently, but not how to think by themselves or to innovate. The nation has piled up more savings than any other people on earth, and at the same time sunk into a deep quagmire of personal, corporate, and national debt. Everywhere we look is the same mixed picture – that is, Chuto Hanpa. Japan's ability to rescue itself will depend partly on the rate of technological advance in business, but here, too, Chuto Hanpa rules. Despite an industrial structure aimed single-mindedly at international expansion, there is no question that, technologically, Japan fell behind in the 1990s. Again and again, Japanese firms and agencies were slow to see that their industries were entering new paradigm shifts – for example, the shift in television from analog to digital. In the early part of the decade, MITI encouraged electronic firms to pour billions into developing high-definition television based on analog technology. It seemed that another Japanese monopoly was about to be established – and then a small Silicon Valley start-up figured out how to do it digitally, and all the money went down the drain overnight. That Japan bet wrong was merely unfortunate; the most telling aspect of these fiascoes is the attempt by government to force people to continue in the use of clearly outmoded technology. A similar pattern afflicts medicine, where, in an effort to protect domestic pharmaceuticals, the Ministry of Health and Welfare refuses to approve foreign drugs. As a result, the Japanese are denied medicines that are in common use around the world for the treatment of arthritis, cancer, and numerous other ailments from headache to malaria. Rather than use a foreign drug with proven value, the MHW encourages local firms to produce copycat medicines with little or no efficacy and sometimes with terrible side effects. These are known as zoro-yaku, « one after another medicines,» because firms put them out one after another. In order to protect the zoro-yaku business, the MHW collaborates with drug companies in hiding deaths from side effects. In one notorious case in the 1980s, the MHW allowed drug firms to continue distributing a zoro-yaku polio vaccine even after it had killed dozens of children, the aim being to protect the makers from the financial loss of recalling unused supply After decades of producing zoro-yaku, and failing to test or monitor medicines properly (the United States' FDA has a hundred drug inspectors, while Japan's MHW has two; the FDA has elaborate drug-testing protocols, while the MHW has none), Japan's pharmaceuticals are hopelessly behind in technology and today have only a tiny international presence. Where the big European and American drug makers are inventing revolutionary treatments for arthritis, Alzheimer's disease, and cancer, not to mention drugs like Viagra and Rogaine, Taisho Chemical, one of Japan's major pharmaceuticals, is pinning its hopes for foreign expansion in Asia on Lipovitan D, a sweet tonic drink that has no medicinal benefit. The very existence of a word like zoro-yaku should set off alarm bells for those who believe that Japan is dedicated to technological advancement. Medicine and biotechnology rank among the biggest growth industries in the world – and Japan is missing the boat. Computer software is another major business that Japan has neglected to develop. Japan imports leading-edge software from Microsoft, Apple, and Oracle; it exports computer games for children. Most surprisingly, Japan also failed to make the leap in chip manufacture, once an area of great strength. Manufacturers did not advance from DRAM production to microprocessors, and thus abandoned the high end of the industry to Intel. Korea and Taiwan, meanwhile, have moved in from below and are eating the Japanese alive at the lower end of the chip business. By 1999, all of Japan's major chip makers were reporting huge losses, while American and other Asian manufacturers had a bumper year. In the area of satellites and rockets, Japan's NASDA space agency, after spending billions of dollars to develop a «Japan-only» rocket, has suffered a humiliating series of failures, most notably in November 1999, when the launch of an H-2 rocket went so badly that ground control had to order it to self-destruct. All this said, the Japanese have one of the world's most sophisticated industrial infrastructures, which annually runs a huge balance-of-trade surplus with the rest of the world. Sony's visionary leaders created a truly international corporate culture that continues to make world-class innovations. The Japanese have commanding leads in LCD screen technologies, as well as in numerous niche fields in precision machinery. So secure are Japanese monopolies in certain specialist components that hardly a computer or advanced industrial device can be built without them. Steel firms and shipbuilders boast some of the world's most efficient factories. Car manufacturers, though greatly weakened, are still a towering presence in world markets. It's a story of strengths inherited from the industries of the 1970s balanced against severe weaknesses in the industries of the new millennium. Technology in Japan is good, but not nearly as good as was once thought; it's «neither here nor there» – that is, Chuto Hanpa. Because of this mix of qualities, Japan will not crash. There is more than enough industrial power to support the population at roughly present standards. On the other hand, given its deep systemic weakness in finance and technology, Japan is not going to boom. The long-term prognosis is for more Chuto Hanpa, with GNP growth slow, unemployment edging upward, and the debt burden mounting year by year.

Part of the undertow against change is Japan's dream of becoming the leader of Southeast Asia. The old desire for empire, previously called «the Greater East Asian Co-Prosperity Sphere,» never completely faded, and in recent years it is enjoying new life. Japan is pouring huge amounts of industrial capital, ODA funds, monetary loans, and cultural grants into Southeast Asian nations in the hope of integrating Thailand, Malaysia, Indonesia, and other nations into a new Asian bloc, with Japan at the helm. The dream is that Southeast Asia will join hands with Japan and act as a new engine for industrial growth; Japan will then take center stage once again, and all the old policies will be vindicated. Typical of the group of theorists beating the drum for a new co-prosperity sphere is Professor Shiraishi Takashi of Kyoto University's Centre for Southeast Asian Studies, who argues that Southeast Asia at the dawn of the new century must now «choose» between the United States and Japan for its model and controlling partner. The choice, of course, should be Japan. Shiraishi represents a strong body of academic and official opinion that is angry at foreign criticism of Japan, especially what Shiraishi calls «stereotypical Anglo-American triumphalist statements that both the Japanese model and developmental authoritarianism are now bankrupt.» He longs for the old days when Japan produced an economic miracle without having to update or rationalize its internal systems. «Free-market ideas of legal contracts, impartial regulations, and transparency are all fine, and perhaps these are all portfolio investors need,» he says with some bitterness. «But can we rely safely on markets for long-term investment for industrialization, technological development, and, above all, human-resources development?» Shiraishi's question – what to rely on? – touches on many of the questions raised in this book. The value of free markets is only one issue; there are numerous others, such as the role of bureaucracy and the importance of clear and correct information to the efficient running of a modern state. Getting Southeast Asia to «choose now» between the United States and Japan is Japan's last big bet at the beginning of the twenty-first century. Perhaps Japan will indeed win the bet and succeed in reviving its old hegemony over Southeast Asia. Backed by new industrial might based on control over Southeast Asia, and with a whole new continent of rivers and valleys to profitably cement over, Japan's academics and bureaucrats will not then feel that they need to give a backward glance at home to ravaged cities, sterile countryside, and a culture of big-eyed baby faces. All complaints can be easily dismissed as «Anglo-American triumphalism,» and Japan can revert happily to business as usual. Perhaps, but then again, perhaps not. For one thing, Southeast Asian nations may not feel that their only choice is between the United States and Japan, or that they have to make a choice at all. The world is a far more complex place than Shiraishi dreams – including a newly unified Europe, a powerful China, and wealthy tigers and dragons in Asia itself, such as Hong Kong, Singapore, South Korea, and Taiwan. Meanwhile, Japan's internal problems affect its position in Southeast Asia, as the elites of these countries discover that Japan is not the cultural or economic paradise they expected. «Korean business is following America rather than Japan,» says Kang Dong Jin, director of Paxnet, a South Korean financial-information Web site. «Korea has seen America enjoy a decade of prosperity and Japan the opposite, so in some ways the choice is easy.» Foreign observers, Western and Asian alike, are asking whether ideal "human-resources development" means millions of construction workers flattening valleys at government expense- and lackluster tourist and software industries. When Thailand's telecommunications agency suffers huge losses from being forced to install the failed PHS cellular system; when educated Indonesians like Yau-hua Lim start saying, «The Japanese have such pathetic lives,» hopes that the leaders of Thailand and Indonesia will «choose» Japan as their preferred and exclusive model dim. The Asian Bet, like many other modern Japanese policies, is likely to turn out neither heads nor tails but something in between-that is, Chuto Hanpa. Japanese industry already has a huge presence in Southeast Asian nations, and Japan's voice in policy is likely to grow. On the other hand, it's doubtful that these nations will sign on the dotted line to unquestioned Japanese leadership. For the next few decades, Japan has enough savings to coast on. This is Japan's tragedy, for only bankruptcy could shock people out of Chuto Hanpa. After the Asian crisis of 1997-1998, Korea, which did not have the luxury of relying on its savings, was forced to make major structural changes. By 1999, the results were making themselves seen in a jump in growth and a revivified political life. However, Japan has not yet suffered such a shock, and despite the loud calls for change, one cannot underestimate the public's complacency. Schools have taught people to ask few questions and to follow a routine, to «endure.» The propaganda machine continues at full tilt, with the voice of Hal reassuring everyone that the rivers and lakes are beautiful, the banking mess has been cleared up, recovery is around the corner, Japans «unique model» is superior and will lead Asia, have a nice day. Children who have grown up in the Chuto Hanpa environment of Japan's cities and countryside reach adulthood knowing of no other way to live. The feeling that it is «too late» exerts a psychological undertow in all Japan's cultural and environmental movements. People naturally wonder what is the merit of enacting new zoning and environmental legislation when the cities and countryside have already been damaged almost beyond repair. What it would take to restore Japan's rivers, mountains, and seaside to ecological health boggles the imagination. What do you do? Strip cement away from river bottoms, grow vines over concrete embankments, cut down the sugi cedar plantations? How will you keep the vast number of people who depend on construction employed? These are difficult questions, and only a determined few have the bravery to face them. Meanwhile, the bureaucracy continues on autopilot for one simple reason: the funds are still flowing. There is no lack of money to continue to build highway loops in the shape of eight-headed dragons and fill in a few more meters of Osaka Bay. Foreign economics experts insist that Japan «must» rein in its overspending on construction, but why must it? The country is eating into its savings-of this there is no doubt. But for the time being there are still trillions of dollars of assets in savings, much of it deposited in the postal-savings system, one giant piggy bank for the bureaucrats to play with. At the turn of the century, hopes for the future remain balanced between revolution and stagnation. Stagnation is most likely in the absence of a major shock to the system, such as a wholesale economic crash. But revolution could happen. The world is full of surprises – who would have imagined in 1985 that by 1990 the whole of Eastern Europe would have shaken off Communism? It is exactly such a surprise that millions of Madame Defarges are quietly waiting for. Sadly for Japan, a crash is highly unlikely. The chances are that for the next decade or two there will never come a moment when the nation stares disaster right in the face. The water will remain lukewarm, and the public will sleep comfortably in a soup of Chuto Hanpa while their country slowly degenerates. When it comes time to carve the epitaph for «Japanese-style capitalism as a civilization,» the legend on the tombstone will read «Boiled Frog.»