Martial arts were forced to change or disappear
Asian martial arts were mostly unknown in the West until after the second world war. In Japan, one of the first things MacArthur's occupation authority did was to effect a near-total disarmament. Anything that smacked of militarism was summarily banned.
Before the war, Japanese/Okinawan martial arts were serious fighting systems; they served an equivalent purpose to Krav Maga or other military self-defense/fighting systems today.
During the occupation, a few Japanese folks with a vested interest in the survival of a martial art - the con-men/salesmen who are known today as the masters - needed to change. To avoid having their fighting clubs proscribed by the authorities, they were forced to align their fighting systems somewhere along two lines: either hype the mystical aspects of the martial art and turn it into (what would be to MacArthur) yet-another incomprehensible Asian religion, or turn it into a sport. Heck, it couldn't hurt to mix and match so you end up with a bit of both.
Consequently, Karate was changed from a (literally) deadly fighting system, the foremost proponent of which was rumored to have perfected his techniques by beating to death an unknown number of Chinese prisoners, to a system of no-contact point fighting and mostly meaningless kata, the original purposes of which are no longer clear and whose original applications are, except in obvious cases, lost. Jiu-Jitsu virtually disappeared, kept alive in private by a small number of devotees. Aikido practicioners either migrated to Judo, a sport in the truest sense of the word, or turned into cult-like reactionaries who changed their (extremely dangerous) fighting system into a nearly impenetrable philosophy which, ironically, claims to emphasize non-violence. The various styles of japanese fencing were absorbed into the sport called Kendo and the other Japanese weapons disciplines disappeared, only to be replaced in modern times by Chinese weapons techniques, renamed and appropriated by Japanese instructors. I refer mostly to staff and flexible weapons training which was mostly a curiosity before the war but has become a significant part of the curriculum of some modern martial arts schools.
The spread of martial arts around the world
During the occupation, Westerners thought of Japanese martial arts as exotic and somewhat comical, but not particularly dangerous. The Hardy Boys got themselves out of a lot of scrapes by employing Jiu-Jitsu, The Green Hornet and his sidekick were supposed to be Aikido experts (although the moves were Chinese in origin). Later, even the peace-loving Doctor Who was an expert in 'Venusian Aikido' (at least in the early episodes).
In the early sixties, Japanese martial arts organizations sent instructors to the West to open martial arts schools (and, some would say, bilk the gullible Westerners out of their money). They were embraced by soldiers who had been in Japan, and by beatniks. The juxtaposed, yin-yang tinged peace, love and understanding mantra that was mixed with undertones of barely-restrained violence that then grew up around the martial arts seems silly today, but was effective at the time. They usually tried to affiliate themselves with universities and to this day there are many large martial arts clubs providing instruction on college campuses.
The martial arts identity crisis
This was all very well and good for the hippies. They had loads of fun acting like cult members and wearing oversized pajamas and parroting phrases in a language they didn't understand. But for people who got into martial arts because of the fighting hype - that it didn't matter what size you were as long as you trained martial arts, or that women could defend themselves with the 'secrets from the orient', or that you could chop through a board with your pinky finger - there was a major problem: the martial arts no longer worked. Gone were the days when the martial arts were practiced seriously, with violent intent. People would find themselves easily beaten by a boxer, or a wrestler, or even by the local neighborhood tough-guy. Despite devoting years of their life and thousands of dollars to training, they could be easily murdered by a thirteen year old kid with a two-dollar knife. All of a sudden, folks who had been involved in martial arts for a significant period of time began to question their goals and their reasons for doing what they did. Grown men and women who devoted a large part of their free time to practicing violence were looked at askance by the mainstream.
Instructors did their best to discourage their students from worrying about it. Platitudes like, "you don't train to fight, you train to not fight" were coined. Claims were made that "training is for a lifetime" and that "the purpose of martial arts is personal growth". Ultimately, students were told, "don't think, just do".
Anyone can teach martial arts
In the mid-sixties, Judo became an Olympic sport and was no longer under the thumb of the bureaucratic Japanese associations that still controlled the other martial arts. Unfortunately, the other Japanese martial arts associations kept an iron grip on their respective organizations. By the early seventies, the non-Japanese students with the most tenure had been training longer, and in a lot of cases had a greater level of skill, than those original Japanese martial arts instructors who went on the mission to spread the martial arts to America and other Western countries. To their chagrin, they were held down in the organization, not granted higher ranks, and if they agitated about it many of them found themselves kicked out of the (tax-exempt, non-profit) organization which they had paid dues to for a good part of their life.
Eventually, various disaffected non-Japanese martial artists started egalitarian organizations that promoted people on the basis of merit, did away with a lot of the cult-like aspects of their previous schools, were financially accountable, embraced rather than stifled diverse opinions, and most importantly, were open to new training ideas. Also, the author turned movie-star Bruce Lee came along and showed the world that the Japanese didn't have an exclusive claim to martial arts. More importantly, he showed that science and rational thought could exist hand-in-hand with a world-class level of accomplishment in martial arts. People wanted to be like him. Bruce Lee's habit of taking the useful parts of a martial art and disregarding the humiliating mysticism and other silliness resulted in a new generation of people being introduced to martial arts training. Ironically, after his death he became an icon and the cult of personality that surrounded him grew to the same outlandish extremes that he originally tried to clear away from other martial arts during his life. His detractors did their best to strike down his ideas while his supporters hit back just as vehemently in the debate about who can rightfully claim to be a martial arts expert.
It showed that there was still a sense that 'traditional' martial arts were the ideal, and the others were just pretenders. Nobody was willing to admit that his or her chosen discipline was inferior to, or even the equal of another. The debate raged on and on and it was universally recognized that what was needed was a tournament that would pit martial artists against one another. This was the dream of every testosterone-filled martial arts zealot.
Mine is better than yours (or is it?)
In the late-eighties, the Jean-Claude Van Damme movie, Bloodsport was released to the accolades of every martial arts zealot on the planet. It depicted a secret martial arts tournament where fighters of different styles came together in an anything-goes contest to decide whose martial art was the most effective. In the movie, the different styles were realistically portrayed, and martial artists concluded that this was the closest they'd get to their dream of witnessing the real thing.
It wasn't until 1993 that fantasy became reality. During the height of the pay-per-view craze, the Ultimate Fighting Championship was held. A little-known Brazilian Jiu-Jitsu cabal organized this tournament, which was billed as the closest thing to a street-fight as you would ever see. It pitted eight fighters, among them a sumo-wrestler, some kickboxers, a Tae Kwon Do fighter, a shootfighter submission fighter, a highly-ranked boxer, some karate fighters, and a Brazilian Jiu-Jitsu expert, against each other in a fight to submission where the rules prohibited only eye-gouging and biting. The fighters were locked in an octoganal cage with chain-link walls and a padded floor (the perfect environment for a Jiu-Jitsu fighter, pundits would complain). The tournament was a single-elimination affair with bouts decided by tap-out (the beaten contestant signaling his submission) or KO.
Predictably, it was a bloody affair. The sumo wrestler was thrashed by a Savate expert half his size, and one of his teeth was kicked out of his head and nearly hit the announcers. The boxer tapped out in humiliation after being completely overwhelmed by the Jiu-Jitsu black-belt. A Karate fighter was choked out cleanly and efficiently without even getting a punch off. Blood flowed aplenty and, finally, hard-core martial arts zealots were getting what they craved. The audience's bloodlust was palpable. Their frustration was evident too, since several of the fights ended in strange submission holds - chokes and joint-locks. These were techniques that most people had never taken seriously. The same things that G.I.s snickered at in the mid-forties were suddenly, in the mid-nineties, being used again to do what they were designed for. Eventually the Jiu-Jitsu expert came away victorious. In one night, peoples' worlds were turned upside down. The strikers - karate players, boxers and kickboxers - wondered what happened.
Sure enough, the worldwide martial arts community found itself shaken by the most important thing to come along since Judo and Tae Kwon Do became an Olympic sport. No longer could proponents of a style claim their super-secret stuff was too dangerous to use in a tournament. The Ultimate Fighting Championship, which was originally conceived to be the tournament to end all tournaments, quickly became a franchise and spawned a host of imitators around the world. In order to survive, people with a vested interest in the traditional martial arts are reverting to the same claims they used during the occupation of Japan, i.e. that the things they teach are peaceful paths to self-enlightenment and/or non-contact sports. The "fighting" martial arts - those that are interested in teaching their students to fight and win - are irreversably changed from their roots that were re-developed in the seventies. These days, anyone who wants to fight has to familiarize him or herself with a host of different techniques and styles. She must be a competent boxer, a knowledgable kicker, and an able submission wrestler. What is now known as mixed martial arts (MMA) is the collected body of knowledge honed by more than a decade of UFC and Pride fighting competitions. MMA has given legitimacy to professional fighters who use only the techniques and training methods that work, and who are finally able to discard the outlandish trappings of the traditional martial art cultists.