Page 28
other country.
59
Industrial structure policy, on the other hand, is more radical and more controversial. It concerns the proportions of agriculture, mining, manufacturing, and services in the nation's total production; and within manufacturing it concerns the percentages of light and heavy and of labor-intensive and knowledge-intensive industries. The application of the policy comes in the government's attempts to change these proportions in ways it deems advantageous to the nation. Industrial structure policy is based on such standards as income elasticity of demand, comparative costs of production, labor absorptive power, environmental concerns, investment effects on related industries, and export prospects. The heart of the policy is the selection of the strategic industries to be developed or converted to other lines of work.
Robert Gilpin offers a theoretical defense of industrial structure policy in terms of a posited common structural rigidity of the corporate form of organization:
The propensity of corporations is to invest in particular industrial sectors or product lines even though these areas may be declining. That is to say, the sectors are declining as theaters of innovation; they are no longer the leading sectors of industrial society. In response to rising foreign competition and relative decline, the tendency of corporations is to seek protection of their home market or new markets abroad for old products. Behind this structural rigidity is the fact that for any firm, its experience, existing real assets, and know-how dictate a relatively limited range of investment opportunities. Its instinctive reaction, therefore, is to protect what it has. As a result, there may be no powerful interests in the economy favoring a major shift of energy and resources into new industries and economic activities.
60
Whether this is true or not, MITI certainly thinks it is true and considers that one of its primary duties is precisely the creation of those powerful interests in the economy that favor shifts of energy and resources into new industries and economic activities. Like Gilpin, MITI is convinced that market forces alone will never produce the desired shifts, and despite its undoubted commitment in the postwar era to free enterprise, private ownership of property, and the market, it has never been reticent about saying so publicly (sometimes much too publicly for its own good).
Although some may question whether industrial policy should exist at all in an open capitalist system, the real controversy surrounding it concerns not whether it should exist but how it is applied. This book is in part devoted to studying the controversy over means that has gone on in Japan since industrial policy first appeared on the
Page 29
scene. The tools of implementation themselves are quite familiar. In Japan during high-speed growth they included, on the protective side, discriminatory tariffs, preferential commodity taxes on national products, import restrictions based on foreign currency allocations, and foreign currency controls. On the developmental (or what the Japanese call the "nurturing") side, they included the supply of low-interest funds to targeted industries through governmental financial organs, subsidies, special amortization benefits, exclusion from import duties of designated critical equipment, licensing of imported foreign technology, providing industrial parks and transportation facilities for private businesses through public investments, and "administrative guidance" by MITI (this last and most famous of MITI's powers will be analyzed in Chapter 7).
61
These tools can be further categorized in terms of the types and forms of the government's authoritative intervention powers (its
kyoninkaken
, or licensing and approval authority) and in terms of its various indirect means of guidancefor example, its "coordination of plant and equipment investment" for each strategic industry, a critically important form of administrative guidance.
The particular mix of tools changes from one era to the next because of changes in what the economy needs and because of shifts in MITI's power position in the government. The truly controversial aspect of these mixes of toolsone that greatly influences their effectivenessis the nature of the relationship between the government and the private sector. In one sense the history of MITI is the history of its search for (or of its being compelled to accept) what Assar Lindbeck has called "market-conforming methods of intervention."
62
MITI's record of success in finding such methodsfrom the founding of the Ministry of Commerce and Industry (MCI) in 1925 to the mid-1970'sis distinctly checkered, and everyone in Japan even remotely connected with the economy knows about this and worries about MITI's going too far. MITI took a long time to find a government-business relationship that both enabled the government to achieve genuine industrial policy and also preserved competition and private enterprise in the business world. However, from approximately 1935 to 1955 the hard hand of state control rested heavily on the Japanese economy. The fact that MITI refers to this period as its "golden era" is understandable, if deeply imprudent.
Takashima Setsuo, writing as deputy director of MITI's Enterprises Bureau, the old control center of industrial policy, argues that there are three basic ways to implement industrial policy: bureaucratic con-
Page 30
trol (
kanryo
*
tosei
*), civilian self-coordination (
jishu
chosei
*), and administration through inducement (
yudo
*
gyosei
*).
63
Between 1925 and 1975 Japan tried all three, with spectacularly varied results. However, at no time did the Japanese cease arguing about which was preferable or about the proper mix of the three needed for particular national situations or particular industries. The history of this debate and its consequences for policy-making is the history of MITI, and tracing its course should give pause to those who think that Japanese industrial policy might be easily installed in a different society.
What difference does industrial policy make? This, too, is part of the controversy surrounding MITI. Ueno Hiroya acknowledges that it is very difficult to do cost-benefit analyses of the effects of industrial policy, not least because some of the unintended effects may include bureaucratic red tape, oligopoly, a politically dangerous blurring of what is public and what is private, and corruption.
64
Professional quantitative economists seem to avoid the concept on grounds that they do not need it to explain economic events. For example, Ohkawa and Rosovsky cite as one of their "behavioral assumptions . . . based on standard economic theory and observed history . . . that the private investment decision is mainly determined by profit expectations, based among other things on the experience of the recent past as affected by the capital-output ratio and labor-cost conditions."
65
I cannot prove that a particular Japanese industry would not or could not have grown and developed at all without the government's industrial policy (although I can easily think of the likely candidates for this category). What I believe can be shown are the differences between the course of development of a particular industry without governmental policies (its imaginary or "policy-off" trajectory) and its course of development with the aid of governmental policies (its real or "policy-on" trajectory). It is possible to calculate quantitatively, if only retrospectively, how, for example, foreign currency quotas and controlled trade suppress potential domestic demand to the level of the supply capacity of an infant domestic industry; how high tariffs suppress the price competitiveness of a foreign industry to the level of a domestic industry; how low purchasing power of consumers is raised through targeted tax measures and consumer-credit schemes, thereby allowing them to buy the products of new industries; how an industry borrows capital in excess of its borrowing capacity from governmental and government-guaranteed banks in order to expand production and bring down unit costs; how efficiency is raised through the accelerated depreciation of specified new machinery investments;