Politicians were slow to react to Japan's long slump. Through the 1990s, little was done to address the root causes of the economic collapse. Only under the administration of Junichiro Koizumi did Japan begin to put into practice the policies that were supposed to tackle them: cuts in government spending, privatization of key industries and liberalization of the labor market. Despite these efforts, Japan's economy is still ailing. But the price paid, in terms of rising inequality and growing unhappiness, is already clear.

A quarter of a century ago, Japan was noted for the relatively fair distribution of its steadily increasing wealth. It was for this reason that a nation viewed during the bubble era as a beacon of world capitalism was once described by Soviet Premier Mikhail Gorbachev as "the most successful socialist country." A phrase used to describe this situation in Japan was ichioku sochuryu, roughly, "100 million-member middle class," or, by implication, "a nation of middle-class people." Secure employment, generous pensions, and a relatively low wage gap between employees and management were the factors that sustained this phenomenon. The results were continuing social cohesion, consistently low crime rates, and high average life expectancy.

Yet by 2007, the OECD found that Japan was second only to the United States as regards the proportion of its population living in relative poverty. The institution reported that between the mid-'80s and 2000, levels of inequality rose twice as rapidly in Japan as in other rich nations. In the 1980s, 11 percent of Japanese children lived in relative poverty, a figure almost identical to the OECD average. By 2000, the percentage of Japanese children living below the poverty line had risen to 14 percent, somewhat above the OECD average of around 12 percent.

Also in 2000, Kyoto University professor Toshiaki Tachibanaki declared that the notion of Japan as an equal society was a myth. His research showed that the country's Gini Coefficient (a standard measure of income inequality, with a higher figure indicating greater inequality) had risen from 0.35, a level lower than many Western European nations, in 1980, to 0.44, similar to the figure in the United States, in 1995. Methods of calculating inequality differ, and so statistics vary: The Japanese government stated that the Gini Coefficient was 0.39 in 2004, after taking into account redistribution through taxes and benefits. Some studies, moreover, have shown much lower rates of relative poverty. Almost all, nevertheless, agree that inequality is now rising.

The corrosive social and psychological effects of this have been seen in other developed nations. Surveys have repeatedly shown a close correlation between crime rates — particularly homicide rates — and social inequality. Thus, the United States has a murder rate more than five times as high as that of Germany. Japan's homicide rate is lower even than Germany's, and crime of all kinds is relatively rare. But we may expect to see more crimes in the future, if inequality continues to rise.

Economic liberalization also takes its toll in psychological terms. British psychologist Oliver James in his book The Selfish Capitalist divides the developed world into countries practicing "selfish capitalism" (primarily the United States and other Anglo-Saxon nations, which have followed the neoliberal economic model of low taxation, deregulation and privatization) and those practicing relatively "unselfish capitalism" (mainly Western European nations, plus Japan). Surveys conducted between 2004 and 2006 revealed that the prevalence of psychological distress in the "selfish capitalist" countries was about 23 percent; for mainland Western European nations and Japan, it was almost exactly half that figure at 11.5 percent. James observes that the incidence of severe distress in Australia rose by two-thirds between 1997 and 2001, in a period when the country was making the transition to an increasingly selfish capitalism. That too may be a portent for Japan's future.

Indeed, there is some evidence that a change is already happening. Japan's high suicide rate — the highest of any developed nation — cannot simply be interpreted as proof of abnormally high rates of psychological distress; South Korea and China also have high suicide rates, and perhaps this may be traced to East Asian cultural assumptions that find suicide to be justifiable and even honorable in some circumstances. But there is clear statistical evidence that levels of distress are rising. In 2006, an article by Leo Lewis in the London Times reported that 60 percent of Japanese workers suffered from severe anxiety and that nearly two-thirds of Japanese companies reported rising rates of mental illness among their workers. Lewis attributed these facts to working practices recently imported from the West: promotion and salaries based on merit rather than seniority, and growing job insecurity.

This is the economic model that Japanese politicians are choosing to follow, in order #8212; so far with limited success — to boost the country's sluggish economy. But if economic growth can be bought only at the cost I have outlined, Japanese citizens may begin to wonder if the game is worth the candle.