growth would have been as fast or faster without industrial policy cannot
be directly refuted, nor can the impact of industrial policy on growth be
directly quantified.

The debate about industrial policy has been intensified not only by
these methodological problems but also by the ideological implications of
the issue. Industrial policy involves a high degree of government interven-
tion in the economy, and such intervention is anathema to many econo-
mists and politicians, particularly in the US. The emotional content of
the debate has in many instances led to a lack of focus, particularly in
regard to the issue of time. Industrial policy advocates and critics rarely
differentiate between industrial policy in Japan's early stages of develop-
ment and industrial policy after Japan had achieved advanced nation sta-
tus. This is clearly incorrect, since changes in the functioning of markets
and institutions that occur as development progresses will have an impact
on how industrial policy can work. Equally important, this lack of differ-
entiation fails to acknowledge the differing degrees of intervention that
have characterized Japanese industrial policy over time.

Despite these methodological and ideological difficulties, few topics
have more relevance than ascertaining the efficacy of industrial policy in
promoting growth. This topic is arguably more important for developing
countries. With over two-thirds of the world's population living in
nations with per capita GNP of less than 1,800 US dollars and one-third
subsisting on less than 300 dollars, the majority of people will greatly
benefit from any means to accelerate the process of economic develop-
ment. Should industrial policy prove to be a key factor behind Japan's
economic success, then industrial policy could serve as a prescription for
many of the world's economic woes. Developed countries too could bene-
fit should Japan's recent experience with policy have contributed to eco-
nomic out-performance.

At the same time, the dangers associated with industrial policy are
equally profound. Even if industrial policy has contributed to success, the
question remains as to how fair such policy measures are in an interna-
tional context. Countries which deliberately attempt to affect the alloca-
tion of resources to select industries must also consider whether they may
face retaliation for doing so. The dangers are obviously greater if indus-
trial policy is ineffective, since its use would slow development and under-
mine growth. If this ineffectiveness is not perceived, then industrial policy
holds a threat even to countries not explicitly practising industrial policy.
In such countries, advocates of industrial policy may blame poor eco-
nomic performance on the absence of policy. To the extent that such per-
formance arises because of mistakes in macroeconomic management,
these mistakes might not be addressed.

The importance of the topic, and related difficulties, have stimulated

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