In a decade the Japanese economy has gone from model to muddle. The elections in June (2000) showed the Liberal Democrats to be out of ideas, out of public favor and nearly out of power.

Since 1990, GDP per capita, the most important measure of a county's economic health and standard of living, has grown by a meager 0.6 percent in Japan, compared with 1.7 percent in the United States.

The Liberal Democrats have only exacerbated Japan's problems with futile attempts at Keynesian stimulus. Debt-to-GDP ratio grew from 60 percent in 1990, twice the level of the United States and Germany.

The McKinsey Global Institute recently completed a year-long study of the Japanese economy to determine reasons and remedies for poor performance. Overall, the work force is 31% less productive than that of the United States.

We found that the Japanese economy was never as strong as it appeared to be during its glory days. Even then, Japan suffered from a dual economy: a small group of world-beating exporters that everyone know about, and a large group of local laggards hidden from public view.

This dual economy remains. The world-beating portion – autos, steel, machine tools, consumer electronics – is thriving, bettering any and all competitors' productivity. Yet these Toyotas and Sonys account for only about 10 percent of economic activity in Japan. They are the exception and not the rule.

William Lewis is the former director of the McKinsey Global Institiute.