Former US Secretary of State Henry Kissinger (left) and Chinese President Xi Jinping meet at the Diaoyutai State Guesthouse in Beijing in July, 2023. (©Xinhua via Kyodo)
The rise of modern and industrial China was not an accident. It was intended and fueled because the United States embraced an economic ideology, shareholder capitalism, that ultimately weakened its own industrial foundations, dismantled a successful ally's model, and empowered a strategic rival.
Japan's stagnation and China's ascent are not separate stories but two expressions of the same structural flaw: a system that rewards short‑term financial returns even when that undermines long‑term national strength. As the world enters an era defined by AI, robotics, and non‑kinetic competition, this flaw has become a national security vulnerability that the US security community can no longer afford to ignore.
How Shareholder Capitalism Built a Rival Power
China's rise exposes a paradox at the heart of the global economic order that the US itself helped shape. The same shareholder‑capitalist logic that undermined Japan's coordinated industrial model ended up empowering China's state‑directed one. Western corporations, driven by quarterly earnings, offshored production, transferred critical technologies, and helped build China's industrial base. These were concessions they never permitted Japan during its own ascent.
In pursuit of immediate profit, shareholder capitalism strengthened a strategic rival while hollowing out America's own industrial capacity. China, unlike Japan, fused industrial upgrading with military modernization, turning economic gains directly into strategic leverage.
The United States dismantled Japan's MITI‑led [now METI] coordination because it worked too well. Yet, it allowed China to build an even more aggressive and militarized version of the same model because it promised short‑term returns. This is the China Paradox: a rival was empowered while an ally was weakened.
Japan's Experience: A Model Dismantled Because It Succeeded
Japan's trajectory after 1990 reveals the consequences of forcing a foreign economic ideology onto a society built on different moral foundations. Admired worldwide during the era of Japan as Number One, Japan's MITI‑guided system was not a bureaucratic anomaly but a coherent civilizational model. With the financial sector anchored by the main bank system, it produced world‑class manufacturing, stable employment, high trust, and long‑term innovation.
Yet the United States pressured Japan to abandon this system because it threatened American financial interests. The reforms of the 1990s and 2000s were not technical adjustments. They were a political project to reshape Japan in the image of shareholder capitalism. The result was three decades of stagnation, demographic decline, and the erosion of a model that had once been hailed as a miracle.
A Civilizational Clash: Relational Ethics vs Extractive Capitalism
Japan's institutions, lifetime employment, seniority progression, senpai–kohai mentorship, were not inefficiencies but expressions of a relational ethic built on reciprocity, duty, and long‑term mutual obligation rooted in Japan's civilizational values. These practices created a high‑trust workforce and a stable middle class, enabling Japan's coordinated industrial strategy to function.
Shareholder capitalism, by contrast, emerged from colonial and plantation economies where absentee owners extracted maximum value from labor without reciprocal responsibility. That extractive logic persists today. It rewards short‑term gains, treats employees as disposable, and prioritizes profit over stewardship.
When this ideology was imposed on Japan, it collided with a civilizational system that had underpinned the nation's postwar success. The incompatibility was not technical ー it was civilizational. And because Japan's model was dismantled, the world lost a functioning democratic alternative to shareholder capitalism.
Social Erosion as Strategic Decline
Once shareholder‑centric reforms took hold, Japanese firms began cutting mid‑career workers, expanding non‑regular employment, and weakening long‑term wage expectations. Household stability eroded. Confidence in the future declined. Marriage and fertility rates also fell. These were not isolated social problems ー they were symptoms of a deeper structural mismatch.
As secure employment gave way to precarious contracts, long‑term skill formation and research and development deteriorated. Corporate loyalty frayed. The middle class shrank. A society built on mutual obligation was forced to operate under an ideology that assumed individuals were interchangeable and disposable.
This resulted in a decline in national capacity for coordinated strategy, precisely the opposite of what Japan needed in an era of intensifying technological competition.
Hollowing Out of America
The United States also experienced its own version of this erosion. Offshoring and financialization destroyed manufacturing communities, widened income inequality, and weakened the economic foundation of American society. These domestic consequences were not unintended side effects ー they were the domestic expression of the same shareholder‑capitalist logic that empowered China.
The US national security establishment, despite having access to China's strategic writings, including doctrines of Un-Restricted Warfare, "winning without fighting" and "unrestricted competition," failed to integrate economic structure into national strategy. Economic policy was treated as separate from security, even as China fused the two.
This was not a failure of intelligence. It was a failure of imagination.
The AI-Robotics Era: A New Strategic Vulnerability
The stakes are even higher in the coming AI–robotics era. Automation will accelerate inequality unless guided by deliberate predistributive policy. Nations with coordinated industrial strategies will dominate emerging technologies. Economic fragility will become a target in non‑kinetic competition.
A society with extreme inequality and a weakened middle class also becomes easier to destabilize, manipulate, or exploit. Economic design is no longer a domestic economic debate ー it is a strategic imperative.
A Warning the US Security Community Can No Longer Ignore
Chalmers Johnson, author of his seminal book MITI and the Japanese Miracle, warned, "We beat the Japanese, but we were beaten by a smarter capitalist." He meant Japan's coordinated model outperformed America's financialized one.
But today, the phrase carries a second meaning: the United States was also beaten by its own internal capitalist shareholder centric logic, one that dismantled a successful ally's system, empowered a formidable strategic rival, and hollowed out its own industrial foundations.
If the US security community continues to treat economic structure as separate from strategy, it will face an adversary that has already mastered the art of winning without fighting. In an era defined by technological acceleration and geopolitical rivalry, national security and resilience depends on rebuilding an economic order that values long‑term strategic strength over short‑term financial returns.
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Author: Yozo Naotsuka
