Japan's "New" Industrial Policy Revives Old Successful Ways

Article excerpt

In their determination to maintain Japan's competitive edge in the 21st century, policymakers are-among other steps-revisiting the famous government-industry collaboration that served them so well in earlier decades.

In March 2004, Shoichi Nakagawa, Japan's Minister of Economy, Trade and Industry, submitted a draft of the first substantive update to Japan's economic and industrial policy in more than a decade to the Economic and Fiscal Policy Council, an advisory panel to the Prime Minister. The new policy seeks to develop specific areas needed to strengthen the international competitiveness of strategic industries.

Strategic industries are defined as those that will support the overall Japanese economy, meet the needs of Japanese citizens and the expansion of domestic demand, capitalize on the strengths of Japan's industrial assets, and that need the cooperation of government and industry.

The policy is the next in a series of strategies used over the past decade to revitalize the economy and build technological and innovative strength. As such, it responds to the same concerns that underpinned Japan's economic, and science and technology policies throughout the 1990s: global competition, a rapidly aging workforce, and a perceived need to be more innovative. While Japan's economy has gained steam in the 2000s with operating profits and capital spending up, it still is experiencing falling incomes, rather high unemployment, and continuing concerns about deflation. In addition, a persistent long-term concern remains about the competitiveness of Japan's products, and how to differentiate and position them as value-added in a more competitive world economy.

Closer Gov't-Industry Cooperation

The new policy builds upon many 1990s approaches such as reforming the banking system, strengthening protection of intellectual property, supporting science and technology, and enhancing innovation. It returns to an explicit call for close government-industry cooperation that, at least in rhetoric, had been shelved in the 1990s. There is also a renewed emphasis on R&D consortia to support technological growth in key areas such as nanotechnology, flat panels, advanced materials, and fuel cells.

Interestingly, Ministry of Economy, Trade and Industry (METI) officials noted in releasing the policy that the United States and others are increasingly adopting and advocating Japanese-style government-industry cooperation and partnerships as a competitive tool.

While the new policy is not a dramatic policy shift, it does differ from earlier policies by placing a much stronger emphasis on developing innovative small and medium-sized businesses (SMEs) and technologies for the services industry. Earlier policies, while mentioning these areas, for the most part stressed the importance of larger companies and more traditional manufacturing and engineering technologies.

Creating New Industries

These new emphases also are reflected in METI's Strategy for Creating New Industries that targets seven strategic industries seen as essential for future high growth, most of which relate to the services sector. These rather broadly defined industries are: digital home appliances, robots, health and welfare, environment and energy, business support services, entertainment software, and fuel cells.

The stronger emphasis on SMEs also is reflected in a call for a diversification of the sources of industrial financial capital to go beyond conventional bank loans that traditionally relied on real estate as collateral. The policy seeks to enhance financing for SMEs that experienced major problems in terms of access to bank loans during the financial crises of the 1990s. Thus, the new policy calls for more venture capital, an electronic bond market, better accounting practices, and support for university-launched spin-off companies.

Fostering Entrepreneurial Skills

In terms of human resource development, the policy seeks to foster those skills that will be needed in a new, more service-oriented and high-tech, knowledge-based society. …