Industrial policy of Japan
Encyclopedia
A complicated system of Industrial Policies was devised by the Japanese Government
after World War II
and especially in the 1950s and 1960s. The goal was to promote industrial development, and it cooperated closely for this purpose with private firms. The objective of industrial policy was to shift resources to specific industries in order to gain international competitive advantage for Japan. These policies and methods were used primarily to increase the productivity of inputs and to influence, directly or indirectly, industrial investment.
Administrative guidance (gyōsei shidō 行政指導) is a principal instrument of enforcement used extensively throughout the Japanese government to support a wide range of policies. Influence, prestige, advice, and persuasion are used to encourage both corporations and individuals to work in directions judged desirable. The persuasion is exerted and the advice is given by public officials, who often have the power to provide or to withhold loan
s, grants
, subsidies
, license
s, tax concessions, government contracts, import
permits, foreign exchange
, and approval of cartel
arrangements. The Japanese use administrative guidance to buffer market swings, anticipate market developments, and enhance market competition.
Mechanisms used by the Japanese government to affect the economy typically relate to trade, labor markets, competition, and tax incentives. They include a broad range of trade protection measures, subsidies, de jure and de facto exemptions from antitrust statutes, labor market adjustments, and industry-specific assistance to enhance the use of new technology
. Rather than producing a broad range of goods, the Japanese selected a few areas in which they can develop high-quality goods that they can produce in vast quantities at competitive prices. A good example is the camera industry, which since the 1960s has been dominated by Japan.
Historically, there have been three main elements in Japanese industrial development. The first was the development of a highly competitive manufacturing sector. The second was the deliberate restructuring of industry toward higher value-added
, highproductivity industries. In the late 1980s, these were mainly knowledge-intensive tertiary industries. The third element was aggressive domestic and international business strategies.
Japan has few natural resources
and depends on massive imports of raw materials. It must export to pay for its imports, and manufacturing and the sales of its services, such as banking and finance, were its principal means of doing so. For these reasons, the careful development of the producing sector has been a key concern of both government and industry throughout most of the twentieth century. Government and business leaders generally agree that the composition of Japan's output must continually shift if living standards are to rise. Government plays an active role in making these shifts, often anticipating economic developments rather than reacting to them.
After World War II, the initial industries that policy makers and the general public felt Japan should have were iron and steel, shipbuilding
, the merchant marine, machine industries in general, heavy electrical equipment, and chemicals. Later they added the automobile industry, petrochemicals, and nuclear power
and, in the 1980s, such industries as computers and semiconductors. Since the late 1970s, the government has strongly encouraged the development of knowledge-intensive industries. Government support for research and development grew rapidly in the 1980s, and large joint government-industry development projects in computers and robotics were started. At the same time, government promoted the managed decline of competitively troubled industries, including textiles, shipbuilding, and chemical fertilizers through such measures as tax breaks for corporations that retrained workers to work at other tasks.
Although industrial policy remained important in Japan in the 1970s and 1980s, thinking began to change. Government seemed to intervene less and become more respectful of price mechanisms in guiding future development. During this period, trade and direct foreign investment were liberalized, tariff and nontariff trade barriers were lowered, and the economies of the advanced nations became more integrated, as the result of the growth of international trade and international corporations. In the late 1980s, knowledge-intensive and high-technology industries became prominent. The government showed little inclination to promote such booming parts of the economy as fashion design
, advertising
, and management consulting
. The question at the end of the 1980s was whether the government would become involved in such new developments or whether it would let them progress on their own.
Government of Japan
The government of Japan is a constitutional monarchy where the power of the Emperor is very limited. As a ceremonial figurehead, he is defined by the 1947 constitution as "the symbol of the state and of the unity of the people". Power is held chiefly by the Prime Minister of Japan and other elected...
after World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
and especially in the 1950s and 1960s. The goal was to promote industrial development, and it cooperated closely for this purpose with private firms. The objective of industrial policy was to shift resources to specific industries in order to gain international competitive advantage for Japan. These policies and methods were used primarily to increase the productivity of inputs and to influence, directly or indirectly, industrial investment.
Administrative guidance (gyōsei shidō 行政指導) is a principal instrument of enforcement used extensively throughout the Japanese government to support a wide range of policies. Influence, prestige, advice, and persuasion are used to encourage both corporations and individuals to work in directions judged desirable. The persuasion is exerted and the advice is given by public officials, who often have the power to provide or to withhold loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s, grants
Grant (money)
Grants are funds disbursed by one party , often a Government Department, Corporation, Foundation or Trust, to a recipient, often a nonprofit entity, educational institution, business or an individual. In order to receive a grant, some form of "Grant Writing" often referred to as either a proposal...
, subsidies
Subsidy
A subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more labor A subsidy (also...
, license
License
The verb license or grant licence means to give permission. The noun license or licence refers to that permission as well as to the document recording that permission.A license may be granted by a party to another party as an element of an agreement...
s, tax concessions, government contracts, import
Import
The term import is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter". Thus...
permits, foreign exchange
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
, and approval of cartel
Cartel
A cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...
arrangements. The Japanese use administrative guidance to buffer market swings, anticipate market developments, and enhance market competition.
Mechanisms used by the Japanese government to affect the economy typically relate to trade, labor markets, competition, and tax incentives. They include a broad range of trade protection measures, subsidies, de jure and de facto exemptions from antitrust statutes, labor market adjustments, and industry-specific assistance to enhance the use of new technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
. Rather than producing a broad range of goods, the Japanese selected a few areas in which they can develop high-quality goods that they can produce in vast quantities at competitive prices. A good example is the camera industry, which since the 1960s has been dominated by Japan.
Historically, there have been three main elements in Japanese industrial development. The first was the development of a highly competitive manufacturing sector. The second was the deliberate restructuring of industry toward higher value-added
Value added
In economics, the difference between the sale price and the production cost of a product is the value added per unit. Summing value added per unit over all units sold is total value added. Total value added is equivalent to Revenue less Outside Purchases...
, highproductivity industries. In the late 1980s, these were mainly knowledge-intensive tertiary industries. The third element was aggressive domestic and international business strategies.
Japan has few natural resources
Natural Resources
Natural Resources is a soul album released by Motown girl group Martha Reeves and the Vandellas in 1970 on the Gordy label. The album is significant for the Vietnam War ballad "I Should Be Proud" and the slow jam, "Love Guess Who"...
and depends on massive imports of raw materials. It must export to pay for its imports, and manufacturing and the sales of its services, such as banking and finance, were its principal means of doing so. For these reasons, the careful development of the producing sector has been a key concern of both government and industry throughout most of the twentieth century. Government and business leaders generally agree that the composition of Japan's output must continually shift if living standards are to rise. Government plays an active role in making these shifts, often anticipating economic developments rather than reacting to them.
After World War II, the initial industries that policy makers and the general public felt Japan should have were iron and steel, shipbuilding
Shipbuilding
Shipbuilding is the construction of ships and floating vessels. It normally takes place in a specialized facility known as a shipyard. Shipbuilders, also called shipwrights, follow a specialized occupation that traces its roots to before recorded history.Shipbuilding and ship repairs, both...
, the merchant marine, machine industries in general, heavy electrical equipment, and chemicals. Later they added the automobile industry, petrochemicals, and nuclear power
Nuclear power
Nuclear power is the use of sustained nuclear fission to generate heat and electricity. Nuclear power plants provide about 6% of the world's energy and 13–14% of the world's electricity, with the U.S., France, and Japan together accounting for about 50% of nuclear generated electricity...
and, in the 1980s, such industries as computers and semiconductors. Since the late 1970s, the government has strongly encouraged the development of knowledge-intensive industries. Government support for research and development grew rapidly in the 1980s, and large joint government-industry development projects in computers and robotics were started. At the same time, government promoted the managed decline of competitively troubled industries, including textiles, shipbuilding, and chemical fertilizers through such measures as tax breaks for corporations that retrained workers to work at other tasks.
Although industrial policy remained important in Japan in the 1970s and 1980s, thinking began to change. Government seemed to intervene less and become more respectful of price mechanisms in guiding future development. During this period, trade and direct foreign investment were liberalized, tariff and nontariff trade barriers were lowered, and the economies of the advanced nations became more integrated, as the result of the growth of international trade and international corporations. In the late 1980s, knowledge-intensive and high-technology industries became prominent. The government showed little inclination to promote such booming parts of the economy as fashion design
Fashion design
Fashion design is the art of the application of design and aesthetics or natural beauty to clothing and accessories. Fashion design is influenced by cultural and social latitudes, and has varied over time and place. Fashion designers work in a number of ways in designing clothing and accessories....
, advertising
Advertising
Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common...
, and management consulting
Management consulting
Management consulting indicates both the industry and practice of helping organizations improve their performance primarily through the analysis of existing organizational problems and development of plans for improvement....
. The question at the end of the 1980s was whether the government would become involved in such new developments or whether it would let them progress on their own.
See also
- Economy of JapanEconomy of JapanThe economy of Japan, a free market economy, is the third largest in the world after the United States and the People's Republic of China, and ahead of Germany at 4th...
- Government-business relations in JapanGovernment-business relations in JapanGovernment-business relations are conducted in many ways and through numerous channels in Japan. The most important conduits in the postwar period are the economic ministries: the Ministry of Finance and the Ministry of Economy, Trade and Industry...
- AmakudariAmakudariis the institutionalised practice where Japanese senior bureaucrats retire to high-profile positions in the private and public sectors. The practice is increasingly viewed as corrupt and a drag on unfastening the ties between private sector and state which prevent economic and political...
: retired bureaucrats joining the ranks of Japanese companies