If fundamental restructuring is also in store for America, the US economy has advantages that Japan's lacks. The American system is more flexible and able to adapt--more willing to throw the losers over the side--while Japan's dense webs of business-financial relationships promote mutual loyalties that are very difficult to dismantle. On the other hand, Americans may discover in the next few years that the United States is not the economic powerhouse described in popular lore. Technological strengths notwithstanding, many US sectors have steadily lost market share, both at home and abroad, to foreign competitors (think of Boeing being surpassed by Airbus as the leading producer of commercial airliners).
"Painful adjustment" means facing up to some long-suppressed truths. Washington's single-minded championing of globalization, for instance, has been good for US multinationals but not for the balance sheet of the American economy, which is underwater and has been for years. That is the meaning of the huge trade deficits, the accumulating indebtedness that inevitably will produce a painful reckoning in standards of living (as a nation, we manage to consume more than we produce by borrowing every year from abroad).
But the even larger reality is that America's weakening position signals the need for a deep restructuring of globalization as well. The globalized system the United States launched and protected throughout the cold war decades approaches its own reckoning with the dilemma of too many factories and not enough buyers. Escaping this condition will require fiendishly difficult diplomacy (made more so by the Bush Administration's cockeyed imperialism), but the risks are historic in dimension (the global trading system disintegrated after 1929 as worldwide depression led nations to protect their own producers and markets from foreign competitors). First, leading nations must join to launch worldwide stimulative policies and persuade rising nations like China not to bring down the system by overwhelming rival producers. The fundamental solution, however, involves the kind of moderating reforms advocated by antiglobalization activists worldwide--rules to rebalance the system and genuinely promote wages as well as output, financial terms that give developing countries more time and space to seek their own distinctive economic plans, plus new institutions of governance that are truly equitable and democratic, instead of corporatized lawmaking. That's a very tall order for statesmanship in a world presently governed by small-minded men.
Meanwhile, the economic dysfunction in the American system involves many other contentious questions, including the overbearing scale of certain dominant enterprises. The spectacular costs of allowing ever-growing bigness in corporations are reflected every day in the news (think of the doomed AOL Time Warner merger that has lost more than $200 billion for investors, or the scandalous behavior of financial mega-firms like Citigroup, or the conglomerate homogenization of broadcasting). The gathering evidence also suggests that the mass-consumption economy that has flourished since World War II may at last be running out of gas. Too many indebted consumers are tapped out or will be in hard times. Who's going to buy all this stuff? Is this weakened condition related to the gross and growing wage inequalities of the past two decades?
The "market signal" of small-d depression might be saying: Don't invest more in the old stuff since we've already got too many shopping centers. Start investing in "problems" the country has long neglected--see these really as economic opportunities. Invest in the energy technologies and industrial transformations required for the posthydrocarbons age of ecologically sustainable prosperity. Invest in healthcare and transportation and production systems to deliver safe, healthy food. Invest in the smaller, more nimble firms ready to do things differently. Invest in people--the human development that begins with children at a very early age. These and other investment opportunities are where the future jobs and higher returns are most likely to be found. The status quo interests will naturally resist such shifts in purpose and deploy their political muscle to block any promising departures. But a fundamental restructuring at least would open the way to think anew, to strive for a different kind of politics. If the Chicken Littles turn out to be right, a pivotal moment is approaching, one that may be both dreadful and promising.