1) The rationing of foreign exchange
After the end of the Occupation, the government of Japan used authority to restrict inward investment to manage the acquisition of foreign technology by Japanese firms.
The economic effects of foreign exchange rationing in Japan are quite difficult to know precisely. The policy certainly protected industries such as coal mining, agriculture and textiles, in which Japan had lost its comparative advantage, thus, reduced Japan’s gains from foreign trade.
2) Fiscal Investment and Loan Program 307
The FILP means the portion of Japan’s public sector that engages in financial intermediation. In the high growth era, BOJ (Bank of Japan) lending practices indirectly supported industrial policy. In the 1950s, the Bank held its discount rate at a lower level than the inter-bank lending rate and limited the amounts it loaned to each bank.
In the late 1950s, the JDB supplied funds equalling almost one-third of the equipment purchases of the coal mining and marine shipping industries. The JDB together with other government financial intermediaries supplied about a third of the equipment funds used by the electric power industry.
3) Preferential tax stipulations and related measures 158
The Japanese Diet passed many laws stipulating preferential tax deferrals and exemptions to encourage exports and investment in targeted industries. The Special Tax Measures Law, in effect from 1951-1961, accelerated depreciation for designated equipment purchases, deferring taxes and thereby reducing the present value of taxes for favoured firms and industries. Initially, designated machinery in targeted industries qualified for 50 per cent write-off of equipment purchases in the first year.
4) Antitrust exemptions 260
The Anti-monopoly Law of Japan prohibited cartels and price-fixing conspiracies. The Exports Transaction Law, also enacted in August 1952, authorised officially sanctioned export cartels of small and medium firms.
With trade opening, Japanese firms responded not only to the dictates if the government, but also to the imperatives of the world marketplace. The Japanese government continued protecting a few sectors, including textiles, transistors, and agriculture, but the general trend of the 1970s was toward openness and Japan’s industrial policy took a new focus.
The recent decades, 1975
After the mid-1970s, the Japanese government shifted the focus of its industrial policy to towards active promotion of collaborative research efforts in the high tech industries and assistance of firms and workers in declining sectors.
1) Assistance to declining sectors 364
In the mid-1970s, when Japan’s macroeconomic growth slowed and world oil prices quadrupled, a number of Japanese industries faced permanent economic reversals, and became widely perceived as “troubled”, “structurally depressed”, and so on. Some of these industries were the very same ones earlier targeted as “strategic” or “priority” sectors and promoted with subsidies, special tax breaks, etc.
The First Oil Stock in 1973 and the permanent slowdown in Japan’s macroeconomic growth rate about the same time induced economic reversals in an unprecedented range of Japanese industries. By 1970, Japan’s shipbuilding industry had become the world’s dominant producer of oil super-tankers. Naturally, with the contraction of Middle East oil shipments, the world demand for super-tankers declined, and Japan’s largest shipbuilders suffered enormous losses.
2) Support for high technology industries 328
The government of Japan has encouraged inventive activity in a variety of ways that should probably not be regarded as an industrial policy, defined as the targeting of specific sectors. These include public expenditures on basic scientific research, the award of patents, and preferential tax treatment of private research expenditures. In addition, some small portion of public support for research in Japan (less than 5 per cent of public R&D expenditures) is directed at developing commercial applications in specific industries, and is indeed a kind of targeting.
With the shift in focus of other elements of Japan’s industrial policy from growing sectors to declining ones, government encouragement of industry has seemed more prominent. It is the major ongoing element of government support for Japan’s high tech industries: semiconductors, computers, biotechnology, and robotics, among others.
Analysis of Japanese industrial policy
There have been some serious attempts at empirical analysis of Japanese industrial policy. For example, Marcus Noland found that without these effects of industrial policy, in at least some years between 1968 and 1974 Japan would have been a net importer rather than net exporter of iron and steel, general machinery, precision machinery, chemicals, and transportation equipment.
He claimed that Japan’s encouragement of steel, shipbuilding, chemical fertilisers, electronic calculators, and machines tools might have indirectly reduced Japan’s net exports of other goods and possibly raised the relative price of those other goods in foreign markets to Japan’s net benefit. However, Noland’s evidence is unlikely to convince sceptics that Japan’s industrial policy did improve the nation’s terms of foreign trade.
Paul Krugman argues that from enlargement of the steel industry external benefits did not exist. Since 1950, the technology of steel production has advanced little and by 1960 it had been completely assimilated by the Japanese producers, and there were no neighbourhood effects of expanded industry output.
Conclusion
In conclusion, I think that industrial policy of Japan has been quite successful when government authorities’ use of subsidies, tax credits, trade restrictions, anti-trust exemptions, etc, to targeted industries. Japan’s industrial policy resides in unique institutions, so much so that “Japanese-style” industrial policy includes government financial intermediaries and an elite bureaucracy with broad powers.
