A few years ago, at one of those Tokyo watering holes catering to “salarymen,” I heard an observation that reflected a sea change in the way Japanese view themselves. “We used to want to be a keizai taikoku [economic superpower],” said this mid-level corporate bureaucrat, “but now we want to be a shakai taikoku  [social superpower].”

The sentiment was a far cry from the heady days of the late-1980s, when many were claiming not merely that the Japanese model of industrial production, lifetime employment, and harmonious labor relations would soon cover the globe, but also that Japan would soon take its place as a political superpower, claiming a seat on the United Nations Security Council, and perhaps even fighting another war with the United States over economic differences.

It didn’t quite work out that way. Nor did the predictions that followed a decade later—that Japan would, if not collapse, at least never recover economically, and quickly settle into the middle rank of powers, hamstrung by its corruption and social malaise.

“We used to want to be a keizai taikoku [economic superpower],” said this mid-level corporate bureaucrat, “but now we want to be a shakai taikoku [social superpower].”

Both of these popular predictions missed a larger question: how would Japan’s encounter with the tides of modernization transition into middle age? Internationalization (kokusaika) has been a buzzword for decades in Japan, referring both to changes inside Japan as well as Japan’s impact on the rest of the world. Indeed, an early variant appeared in the 1870s, when Japan first began to shed its feudal skein and adopt the trappings of modern European nations. Back then, it was called “Civilization and Enlightenment” (bunmei kaika), a proud acknowledgement that Japan’s young leaders, mostly former samurai, were doing what no one else in the neighborhood seemed willing or able to do. Even in the 7^th and 8^th centuries the ruling clans of Japan were assiduously “internationalizing” themselves and their land, by importing the most advanced tenets of Chinese civilization, from record-keeping to religion to political theory.

This centuries-long encounter with the outside world, and a continual recreation of Japanese culture and society, is what has made Japan what it is. What business executives, policymakers, and academics have to accept is that Japan’s path will never cleanly map onto their preconceptions of what a globalized society looks or acts like.

Take economics. The bursting of the asset price bubble in 1989 not only led to a long slump, but more importantly revealed the extent to which relentless export-driven growth had managed to mask ingrained patterns of crony capitalism and gross inefficiencies.

Serious economic restructuring began in the mid-1990s, particularly with the financial reforms known as the “Big Bang,” and picked up pace under former Prime Minister Junichiro Koizumi, who demanded more transparency and pushed to clean up balance sheets loaded with bad debut. Yet the pace of reform was slow, because Japanese leaders valued social cohesion above all else. Even as lifetime employment at major firms slowly eroded and small businesses failed, pork-barrel politics ensured a steady flow of funds back to home districts. At the same time, however, Japan’s economic activity evolved, with new foreign markets opening up for its cultural goods like animation and pop music, while Japanese enterprises expanded trade and operations throughout Asia, especially in China.

What business executives, policymakers, and academics have to accept is that Japan’s path will never cleanly map onto their preconceptions of what a globalized society looks or acts like.

But not all the changes were as visible. For example, hundreds of thousands of young Japanese were in effect dropping out of society, becoming what the government labels “NEETs”: No Education, Employment, or Training—a particularly frightening problem in a society that is now losing population and has no comprehensive immigration policy. In addition, many of the jobs that Japanese consider the “3Ks”—dirty, difficult, or dangerous (the letter K starts each word in Japanese)—are now performed by illegal immigrants and day laborers. Wander through Ueno Park in central Tokyo on any given Sunday, when these largely invisible workers come out for their day of freedom, and you see the underpinnings of a central part of the Japanese economy. These challenges demand sustained attention, and Tokyo finally seems to be waking up to them.

At the same time, the social stability so prized by politicians played a crucial role in offsetting the weaknesses in the economy. Since young men and women largely continue to live at home until marriage (and sometimes after), they hold a huge pool of disposable income, which has kept the entertainment districts, department stores, and restaurants buoyant.

The situation is different in the countryside, where population declines pose a long-term economic challenge. But increasingly, regional hubs like Nagoya or Fukuoka are attracting those who cannot find work in the villages—and, not incidentally, have become the areas of the greatest entrepreneurial energy.

Political reform has followed the meandering pace of economic reform. Some researchers estimate that close to two in five seats in the House of Representatives are still held by second- or third-generation members (Shinzo Abe, the current Prime Minister, is the grandson of a former premier and the son of a Foreign Minister). In Japan’s electoral system, long-standing local ties between a politician and his local support base are nearly unassailable—and that bond encourages the pork barrel corruption cycle. Still, Japan today is far closer to a true two-party system than at any time in its postwar history. Corruption among the country’s elite bureaucrats has also been addressed, and stricter rules on entertaining and gift giving are in place.

For all the ways in which Japan is back, few are as impressive as the nation’s new foreign policies. Here, too, it is wise to remember that internationalization is a multi-lane highway, not a one- or two-way street. A Japan that for years was derided for its checkbook diplomacy is now showing a new strategic edge—and in the process helping to shape the future of Asia. Tokyo pushed the U.N. to impose sanctions on North Korea’s rogue regime after the July 2006 missile launches, and it has taken the hardest line at the six-party talks on Pyongyang’s de-nuclearization, refusing to indulge Kim Jong-Il until he makes a full accounting of Japan’s kidnapped citizens. These two dozen or so unfortunates were grabbed off the streets or beaches of Japan and spirited back to North Korea to serve as trainers for Pyongyang’s spies and saboteurs. This outrage has yet to be resolved, and Kim’s minions continue to lie about the fates of the Japanese victims.

Japan’s new international muscle goes far beyond North Korea, however. In committing to missile defense research with the United States and requesting the most advanced American F-22 fighter jets, Japan is taking the required steps to maintain a credible defense against the military build-up of any regional competitor.

Meanwhile, Abe not only wants to revise Japan’s constitution to allow for the right of collective self-defense among other things, but he has also dispatched Self-Defense Forces to the Indian Ocean and Iraq in support of the war on terrorism and increased military exchanges with Australia and India and counterterrorism training for nations in the region. Nor should one discount the effectiveness of the Maritime Self-Defense Forces in providing crucial humanitarian aid to victims of the Indonesian tsunami, along side the Americans and Australians.

The expectations of the Japanese themselves have moved beyond both the irrational exuberance of the 1980s and the gloom of the 1990s.

In short, Japan is rapidly laying the groundwork for becoming a significant provider of regional public goods, which is as important a marker of “internationalization” as any trade statistic or election result. All of this is tied together by Abe’s new strategic vision to create an “arc of freedom and prosperity” from Northeast Asia to Western Europe. Tokyo must figure out how to move beyond the rhetoric to breath life into this grand concept, but it unquestionably offers an alternative to a future Eurasia dominated by China.

Of course, Japan faces problems. From a shrinking population to a static military budget, from alienated youth to a declining savings rate, the country will be forced to make major choices in the coming decades. What has changed, however, is not only that real reform seems to have taken root, but perhaps more importantly that the expectations of the Japanese themselves have moved beyond both the irrational exuberance of the 1980s and the gloom of the 1990s.

Walking through the streets of Tokyo or any other city, one is assailed by the buzz of activity—of small businesses, internet cafes, a plethora of newspapers and books. In short, one feels the lifebeat of a free society.

My friend at the bar understood that Japan’s policies of internationalizing itself were in service of a noble goal: to provide quality, not just quantity; to play to Japan’s strengths of social cohesion, rich culture, and consumer freedom, and thus avoid the overreaching of the past. As Prime Minister Abe’s call to make Japan a “beautiful country” indicates, the politicians may finally have caught up with their voters.

Michael Auslin, an associate professor of history at Yale who specializes in the U.S.-Japan relationship, will join the American Enterprise Institute next month as a resident scholar.

Image credit: Photo by Flickr user spinachdip