Summer 1998 —

Hopes in Asia Pacific that Japan will help solve the region's financial crisis are all but certain to be dashed. Japan does not have the fiscal power and maneuverability to act as the engine of Asia. More important, it may not have the political will.

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Since the equity and real estate bubble burst in 1990, Japan has abdicated the intellectual leadership of the region. By tinkering with and expanding—rather than junking—the state-capitalist economic model of the postwar period, Japan is offering a "wagons on a circle" example to Asian countries. Even if that strategy were right for Japan (which is doubtful), it is almost certainly not economically optimal for other Asian nations.