In recent years, we have heard more and more about a Japanese model of development. This model differs markedly from the orthodox models of capitalist development championed in Great Britain and the United States, particularly in its reliance on deliberate government intervention to guide the economy [Johnson 1982; Fallows 1994; Sakakibara 1993]. It also differs from European social market capitalism in that labor is not incorporated into state-market cooperation [Pempel and Tsunekawa 1979]. There is a growing interest in whether the model can be exported; in the 1990s, there have been increasing calls to use the foreign aid program to promote the Japanese model of development in the developing world [Waga Kuni no Enjo Rinen 1990; Shiratori 1995]. Such prescriptions have been incorporated into country studies and discussions with multilateral lending institutions.
But what exactly is the Japanese model? What does the Japanese experience of administrative guidance and close government-business cooperation really entail? I argue that there are two models of economic policymaking in Japan with contradictory conclusions about the sagacity of government intervention and the benefits to the economy and society that accrue therefrom. The two models diverge, I further argue, because there are actually two quite different economies in Japan.
The first economy comprises the efficient export sector. A (relatively) incorruptible bureaucracy, composed of ministries such as MITI and the Ministry of Finance, provides administrative guidance. Business-government interaction takes place within an environment in which the associations that represent business tend to focus on strategic support from government to promote industry-wide goals. It is these sectors in which Komiya  avers that "industrial policy" in the economic sense is most likely to occur.
The second economy is composed of the grossly inefficient domestic sectors represented by small retail business, agriculture, and public works construction [Calder 1988; Woodall 1997]. Policy for this sector is made by "politicized ministries"(1) such as the Ministry of Agriculture, Forestry, and Fisheries (MAFF) and the Ministry of Construction (MOC), with frequent interference from elected politicians. If the first economy is marked by long-range planning in which government and business cooperate to build export competitiveness, the latter is characterized by inefficiency and the primacy of political considerations over rational allocation of economic resources. Clientelism characterizes business-government relations in these latter sectors. Structural corruption, in which the inefficient sectors are essential components of the supply of political funds to the Liberal Democratic Party (LDP) [Potter 1997], has been a key component of this state-market relationship.(2)
The two economies are linked. Brian Woodall [1996, 134] argues that the two have survived in a symbiotic relationship in which the successes of the developmental state in the former have been guaranteed by the social and political stability maintained by the latter. Somewhat differently, one economist has observed that institutional symbiosis found in government-business and interindustry relations tends to become institutional collusion over time [Yamamura 1997].
Japan's foreign aid reflects this bifurcation in the Japanese political economy. While aid is considered an essential ingredient of the expansion of economic opportunities for Japanese corporations abroad - both as stimulant for exports and DFI and as facilitator of political relations with developing nations [Arase 1995] - the internal character of the aid program more closely resembles that of the inefficient economic sectors guided by politicized bureaucracies. The developmental state promotes the intersection of public and private goals, with the latter often as important as the former.
In this paper, I argue …