Planning for Change: Industrial Policy and Japanese Economic Development, 1945-1990

Planning for Change: Industrial Policy and Japanese Economic Development, 1945-1990

Planning for Change: Industrial Policy and Japanese Economic Development, 1945-1990

Planning for Change: Industrial Policy and Japanese Economic Development, 1945-1990

Synopsis

What has been the role of goverment industrial policy, through agencies such as MITI, in Japan's extraordinary post-war development? How has the role changed in successive phases of growth? What `lessons' can be learned from this experience by other nations, be they in the West, or developing countries or economies in transition attempting to introduce competitive market structures? These are some of the main questions addressed in this absorbing and thorough study. Dividing the period into three main phases, the author shows that policy played a crucial role in the initial period of post-war recovery. It did so not by `picking winners' but by creating a stable base from which development could occur by spreading the cost of introducing market competition over time. In the succeeding high growth period and more recently Japan's industrial policy attempts only to promote the development of new technology and smooth the decline of sectors that are no longer globally competitive. That Japan itself no longer practises industrial policy on a wide scale is an irony little appreciated by those advocating the adoption of a `Japan style' industrial policy elsewhere.

Excerpt

The simultaneous occurrence of Japan's highly successful development with a widespread use of industrial policy does not in itself imply a causality between the two: growth might have been the result of favourable macroeconomic policy or expanding world trade, and industrial policy might have contributed little or nothing to Japan's development. Nevertheless, this apparent correlation is striking and worthy of investigation. To that end, this chapter outlines economic criteria which are useful in assessing the possible impact of industrial policy on Japan's post-war growth. These criteria fall short of providing an empirically verifiable model, impossible given data limitations. Even so, they act as a basis from which to make an informed judgement about policy efficacy.

3.1 A Simple Dynamic Framework

Industrial policy, which includes all measures designed specifically to influence resource allocation for selected industries, can be divided into two distinct and seemingly contradictory types in Japan's first two decades of post-war autonomy. One set of measures was designed specifically to foster growth in select industries in order to further industrialization. Industries were chosen on the basis of their perceived growth potential and their expected future competitiveness. Whatever protection or subsidies were applied, the final goal of this set of policies was to create industries capable of surviving and expanding in free domestic and international markets. In short, this type of pro-growth industrial policy was viewed as a temporary support, to be eliminated once an industry was capable of withstanding the discipline of the market.

On the other hand, a second group of measures directly undermined the market mechanism. Industries which were not thought to possess favourable future growth prospects were nevertheless protected because of their ability to provide employment. Competition was blocked, yet there was often no expectation that productivity could be raised to levels which would ensure survival in a free international market. Little thought was given to the eventual removal of support measures. Such measures can be broadly categorized as anti-growth industrial policy.

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