The World & I: Since its crushing defeat in World War II, Japan has reversed its fortunes to become an economic superpower. But it now faces mounting economic and political problems. What of the future? Where will Japan be a decade from now, in the year 2003, economically, politically, strategically?

       Arthur Alexander: First, Japan will have gone through a period of slower growth, and that will bring cumulative changes over the next decade. Many of the things that we now look at as characteristic of Japan, like lifetime employment, will be gradually changing in this period.

       Institutions, mainly government and the way government works with people, will be changing a lot. Why? Because the economy is slowing down due to demographic trends, lower savings rates, and partly because people are growing older.

       The Japanese economy is becoming integrated with the global economy, which means that companies in Tokyo have to pay as much for their money as companies in Washington, D.C. It's a global financial market. Even though boundaries still matter somewhat, they are becoming less and less important.

       Also, because of that, investment rates in industry will decline. When you get slower investment, you get slower growth and slower increases in productivity. The Japanese have already reached many of the technological frontiers, and when you do, it's a lot harder to get your gains in the future than in the past.

       We will see companies that are probably as innovative today as they used to be, like Sony, just making bad bets on new products. It's hard when you're out there with nobody to copy from, when you're standing there alone and trying to figure out what's the next thing to do, and have to come up with the ideas. You get a lot of failures.