This article first appeared in Newsweek Magazine, in the March 15, 2010 issue.
Japan was morbidly fascinated by the spectacle of Toyota president Akio Toyoda apologizing to the U.S. Congress for the deadly defects that led to the recall of 10 million of its cars worldwide. The appearance of the "de facto captain of this nation's manufacturing industry," as Japan's largest newspaper referred to Toyoda, seemed to symbolize a new bottom for a nation in decline. Once feared and admired in the West, Japan has stumbled for decades through a series of lackluster leaders and dashed hopes of revival. This year, Japan will be overtaken by China as the world's second-largest economy. Through it all, though, Japan could cling to one vestige of its former prestige: Toyota—the global gold standard for manufacturing quality.
And now this. Toyota is getting lampooned all over the world in cartoons about runaway cars. Japan's reputation for manufacturing excellence, nurtured for half a century, is now in question. Shielded by the U.S. defense umbrella after World War II, Japan focused its energy and money on building up only one aspect of national power: quality manufacturing. A foreign policy commensurate with Japan's economic strength was subordinated to industrial policies aimed at creating the world's best export factories. No matter how quickly Chinese and South Korean rivals grew, Japan could argue that its key competitive advantage was the quality of its brands. "Toyota was a symbol of recovery during our long recession," says Ryo Sahashi, a public-policy expert at the University of Tokyo. Now Toyota's trouble "has damaged confidence in Japanese business models and the economy at a time when China is surpassing us."
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