Industrial Policy and Economic Transformation and Upgrading: Lessons from Japan
concept of industrial policy comes from Japan’s economic practice and is an important research field of development economics. “The Ministry of International Trade and Industry and the Japanese Miracle” and “The History of Japan’s Trade and Industry Policy” provide valuable information for research in this area.
From the perspective of American scholars, the former book provides the organizational structure, personnel and operating mechanism of Japan’s economic decision-making institutions starting from the Ministry of Agriculture and Commerce (the predecessor of the Ministry of International Trade and Industry), as well as the historical background of the introduction of various important economic policies from before the war to 1975 , for the first time disclosed the complicated political parties and interpersonal and social relations behind many policy formulations. It is a serious historical work that deeply understands Japan’s industrial policy.
The latter book was written by former important officials of the Ministry of International Trade and Industry and experts in Japanese economics, systematically sorting out the main content and development of Japan’s industrial policies as of 2010. The authors of the two books are very familiar with the modern Japanese economy. The first book discloses many anecdotes of Japanese economic history before the 1980s, and the second book provides a more complete introduction to Japan’s economic policies after 1980, and the content complements each other. .
Japan’s developmental model
Chalmers Johnson classified Japan after the Meiji Restoration as a developmental (planning-guided) country. The economic interests of these countries are subject to political goals, and they attach importance to upgrading the industrial structure through industrial policies to enhance national competitiveness. Robert Ozaki pointed out that industrial policy is a reflection of economic nationalism, and Japanese industrial policy is formulated and implemented by elite officials from the Ministry of International Trade and Industry based on their understanding of international interests.
In 1925, Japan formally established a government department to implement industrial policy. Japan’s industrial policy has continuity from personnel, organization to operation mechanism. In countries that industrialized late, there are many examples of government-driven development. Japan carried out state intervention (deficit fiscal policy) in the 1930s, and the growth rate of industrial output value was as high as 81.5% between 1931 and 1934. Different development stages have different ways for the government to participate in the economy. Before 1960 in the United States, the government guided and supported many industries through the military-industrial complex.
Chalmers Johnson believes that Japan’s pre-war and post-war reconstruction and high-growth period were mainly state-controlled government-enterprise relations, which were characterized by the priority of national goals over private enterprise goals, suppressed competition and low-efficiency economic activities, and encouraged non-responsibility. responsible business conduct. Later, it was transformed into the current government-private coordinated government-enterprise relationship, which achieved a high level of competition, and the government has greater goal-setting power and influence on the decision-making of private enterprises. This system selectively grants enterprises the right to obtain government financing or guaranteed financing, tax breaks, commercialization and sales supported by the government, and the government will implement investment coordination to ensure that all participants are profitable, and the burden will be distributed reasonably in times of recession. , and provide assistance in the event of an industry downturn.
Japan’s main economic achievements were achieved during the period of relatively open international trade and globalization, but the role of the domestic market cannot be ignored. In the 20 years after 1955, domestic demand drove Japan’s economic growth. The essence of Japan’s industrial policy is to replace disorderly competition through coordination among interest groups, and to achieve national interest goals without sacrificing efficiency. The goal set by the government that upholds the national interest is likely to be at odds with the profit maximization goal pursued by enterprises. Based on nationalist consciousness, the Japanese people will continue to agree that the national interest is the priority, or the people still feel that the fragility of the Japanese economy requires the government to To intervene, they will make a trade-off between tolerating the occasional overstepping of the line by officials and timely and efficient economic management.
Industrial Policy and Comparative and Competitive Advantage
Japan’s industrial policy includes the “industrial rationalization policy” that focuses on the micro level. In fact, it started from the Meiji era. It mainly aimed at Japan’s disadvantages in technology, facilities, management, industrial location, and industrial organization, and promoted the adoption of international best practices in the entire industry. Improve and improve. On the other hand, its industrial policy focuses on the macro, which is called “industrial structure policy”. The government adjusts the industrial structure in a way that is beneficial to the country and promotes the development of strategic industries. Japan does not seem to follow the theory of comparative advantage in the process of economic development. Even in the period of rapid development in the 1960s, industrial policy did not have the concept of comparative advantage at all. In fact, Japan did focus on industries such as textiles and machinery processing with comparative advantages in the initial stage of recovery after defeating the war, and formulated a development plan for the car industry, but failed to achieve significant results.
The Japanese government vigorously promotes the improvement of enterprise management and existing industries at the micro level, rather than allowing them to develop on their own on the established track. In terms of developing “infant industries” that are important to national interests, even if there are no good conditions for the time being, policy preference and support will be used to create a favorable environment and promote the rapid growth of new industries. When the government determines which industries should be prioritized for development, it has established selection criteria, such as the industry selection criteria that emphasized high income elasticity and productivity improvement in the 1950s. The criterion of minimizing dependence on scarce factors of production and energy was added in the 1970s.
The goals of Japan in the past 100 years were to prosper industries, enrich the country and strengthen the army, expand production capacity, revitalize exports, fully employ and grow rapidly. Japan experienced early industrialization before World War II, which laid a certain foundation for the post-war proposal to upgrade its industrial structure. Physical capital and human capital (entrepreneurs and technicians and middle managers) needed for industrialization have been accumulated through export-oriented industrialization. Japan has developed from a relatively backward industrial country to an economic powerhouse, and the formation of competitive advantages is difficult to explain with the theory of comparative advantage.
After the realization of heavy industrialization in Japan, in the 1970s it was very far-sighted to put forward the development direction of “knowledge industrialization” and “knowledge-based industrial structure”, acknowledging the necessity of market competition and clarifying its limitations (information asymmetry and market dysfunction caused by external non-economic factors). Emphasize the role of policy is to quickly build a “new industrial structure.” Japan’s industrial planning in the 1980s mentioned dynamic comparative advantages. Out of the necessity of constructing and adjusting the structure of international industrial division of labor, public funds should be invested in infrastructure projects and social development with high risks to improve the production efficiency and quality of the service industry. Technology research and development, industrialization of public services, etc. The planning in the 1990s focused on increasing the contribution of the service industry to the national economy, improving the efficiency and diversification of circulation and service industries. After entering the 21st century, Chalmers Johnson believes that the era of industrial policy centered on the cultivation of specific industries is over.
Policy Process Interaction of Government and Society
A fundamental issue in state-led high-growth regimes is the relationship between government agencies and private firms. Japan’s government-enterprise relationship is a “government-property complex”. Japan gradually adjusted to the existing government-enterprise partnership after the failure of the state’s attempts to directly manage enterprises and completely autonomous management by enterprises. The former has been implemented for 15 years, and the problems of corruption, bureaucracy, and ineffective monopoly are found to be very serious; after the “oil crisis” in Japan, the public feels that the Ministry of International Trade and Industry, a bureaucracy that serves itself, needs to intervene, and the organization and coordination of the market is more in line with the public response to interests.
The formulation of economic policies is led by officials from the Ministry of International Trade and Industry. How can they accurately and comprehensively understand the economic and industrial development status, make wise and accurate predictions for the future, and promote the implementation of policies around national interests? Questions worthy of deep consideration. It is a necessary condition to concentrate on training and training suitable talents for formulating and implementing policies. Relying on a group of experts who advise on policy proposals and policy implementation, and a flexible reorganization of the organization to adapt to the times when necessary, are two other important reasons for the success of the Ministry of International Trade and Industry.
Japan’s industrial policy-making institutions have been evolving. After 1952, the Ministry of International Trade and Industry lost its power to directly control the economy, and began to intervene in the economy through indirect means that followed market rules. The Ministry of International Trade and Industry is also full of factional struggles like other government departments, but officials below the minister are basically technical bureaucrats with a high level of specialization and are less affected by political parties. Fortunately, the policy thinking of the ruling party has not deviated greatly. Another feature is that the Ministry of International Trade and Industry has set up a number of review committees. The members are experts from the private sector, other government departments, and business circles. They conduct critical thinking and in-depth discussions on policy proposals, and review the effects of implemented policies. The voices of interest groups were transmitted to the government decision-making departments in a timely manner, and these consultation and adjustment work were fully carried out at the technical level of policy design, which not only played a role in correcting the policy implementation process, but also played a role in connecting social requirements, policy publicity and unified consensus. important role. The branches of the Ministry of International Trade and Industry in various places are responsible for timely feedback on the implementation of policies, proposing suggestions for improvement of the active regional economy, and conducting timely investigations and adjustments.
People in government policy-making departments are the key factor. The Ministry of International Trade and Industry makes major adjustments to its organizational structure and personnel every 25 years or so. For example, in response to many criticisms from all walks of life, through internal reforms in 1973, Japanese companies were directed to get out of the oil shock. Although officials of the Ministry of International Trade and Industry are accustomed to taking too much intervention at the micro level, they have to become more low-key under social pressure.
The end of the 1970s marked the end of an era in which the last two decades of the 20th century saw major changes in both the internal and external economic environment: domestic macroeconomic changes in Japan (emphasis on markets and fiscal reconstruction), economic globalization, and international efforts to protect the global environment. Public opinion heated up. In this period of shifting gears from high-speed economic growth to low-speed growth, the main tasks of the government have been adjusted, and the limited budget needs to be allocated rationally. The power of the cabinet was increased, ministries were reduced, and the Ministry of International Trade and Industry was renamed the Ministry of Economy, Trade and Industry. It began to emphasize macroeconomic policies, and tended to formulate legal regulations instead of using administrative intervention as the main means of promoting industrial policies. Policy research topics require cross-sectoral collaboration to address.
The ideas and knowledge of the previous generation who held the real power of the Ministry of International Trade and Industry were suitable for the management of heavy and chemical industries, but not enough to deal with the new problems facing them. The new generation of nationalists with a more international perspective cultivated by the Ministry of International Trade and Industry gradually entered the leadership and began to brew a new industrial structure reform focusing on the post-industrialization era. With the development of information technology and energy technology, more and more industries no longer apply a single industrial policy, and the government’s functions are transformed into inventing and cultivating advanced technologies and developing innovative production technologies. For example, actively support the research and development of large-scale infrastructure, strengthen the protection of intellectual property rights, and encourage the transformation and transfer of research results, including the transfer of patents related to research results of state-entrusted projects to civilian use.
There are many academic explanations for Japan’s unique phenomenon between the state-controlled planned economy and the Western free market economy. For example, the Japanese do have a unique willingness and ability to cooperate with each other rooted in their culture, “the government, the ruling party, industry leaders and the public have a clear view of the primary economic goals of society as a whole, and the means to achieve these goals. unanimous”. In the process of institutional system development, even if some institutions were not created by the government, they were strengthened when the government thought it was suitable for its own purposes. The government’s industrial policy has affected the investment rate of certain strategic economic industries, and enterprises have adopted special employment and unemployment countermeasures.
This is a set of mutually compatible institutional systems based on Japan’s specific social traditions and historical evolution, and some of them cannot be simply applied. Whether Japan will be able to explore a successful regulatory (market-led) economic development path remains to be seen.