Japan’s industrial policy has proved unsuccessful as a trade or economic policy, new research shows. However, it seems that each generation has to relearn the lessons of the past as today the governments of China, Europe and the United States support industrial policy. Policymakers are convinced that government planning will make national economies better than market forces.
“Industrial policy in Japan was not responsible for the country’s economic achievements in the post-war era or for the international performance of major sectors, including automobiles and electrical machinery,” according to a new study by the economist Richard Beason for the National Foundation for American Politics. . âThere is no evidence that industrial policies increased productivity growth in the faster growing or technologically advanced sectors of the Japanese economy between 1955 and 1990, when industrial policy was used in Japan, making doubt that industrial policy would be effective today in other countries.
Beason, professor of commerce at the University of Alberta, is an expert on Japanese economic policy and is the author of two books on Japan. He emphasizes that the difficulty of adopting a successful industrial policy is not unique to Japan. He found that Japanese industrial policy from 1955 to 1990 did not improve growth rates by sector, did not result in greater efficiency through economies of scale, or did not result in improved productivity. productivity growth or “competitiveness”.
Beason provides two explanations why Japan’s industrial policy has failed. First, the reality of the political process makes it unlikely that such policies can be effective, as the pressure always exists to direct money to privileged political constituencies. Second, policymakers lack the knowledge to allocate the resources that would produce the best results against businesses and entrepreneurs who must face market discipline.
Beason found that Japanese industrial policy did not favor “fast-growing sectors” and gave great support to industries that were not growing much at all. To conduct the research, Beason examined four industrial policy measures used by the Japanese government during the period 1955-1990: 1) subsidized government loans to industry, 2) subsidies, 3) tariff protection, and 4) tax relief. .
Among the main research results:
Â· “The industries that we associated with Japan during the period of strong growth, electrical machinery (most of the ‘tech’ sector), general machinery (most of the capital goods industries) and the transport equipment sector (which includes automobiles) were generally down in terms of government support between 1955 and 1990. What these and other sectors received in quantifiable public policy was largely unrelated to growth or productivity growth, and government policy acted as a barrier to faster growing sectors because these sectors had higher rates of tax efficiency than slow growing producers.
Â· âThis result stems from two facts: actual resources are allocated according to the political preferences of legislators, and the actual patterns of growth and productivity over the period were largely determined by market forces.
Â· âThe data shows that industrial policy tools have been disproportionately allocated to slower growing industries. The governments of most countries provide some support to virtually all industries, whether they are fast growing or slow. Slower growing industries are likely to be more active in raising public funds, and some of the slow growths are likely to be located in certain geographic regions, and politicians in those regions are urged to seek more funding. public for these industries.
Â· âThe actual distribution of industrial policy tools was the result of such a political process that implementation in Japan was fuzzy and arbitrary. Data shows that it was often the case that an industry could benefit disproportionately from some measures but not others.
Â· âIndustrial policy tools generally did not have a positive and significant impact on productivity growth (â competitiveness â) for the various sub-periods from 1955 to 1990.
Â· âThere is no evidence that supporting declining industries (such as textiles and mining) through industrial policies has enabled these industries to achieve long-term success.
Â· âThe two sectors that received so many resources during the period of strong growth, mining and textiles, have gradually become insignificant since these policies were unwound in the 1990s. The textile trade surplus was 1 , $ 13 billion in 1970. It gradually fell into deficit from the mid-1980s, reaching a deficit of $ 28.4 billion in 2016. Likewise, employment in the sector eroded from 719,814 in 1985 to just 109,064 in 2011. Coming to the mining sector, it is difficult to understand why so many public resources have been devoted to promoting such an unprofitable sector. Employment in the mining sector was less than 20,000 people in 2020.
Â· âJapanese policymakers have not experimented with strategic trade policies. Strategic trade policies would include identifying industries that achieve economies of scale (greater efficiency), then protecting those industries from imports as they reach scale and subsidizing exports in order to achieve benefits as well. economies of scale in foreign markets. Not only is there no evidence that Japan ever engaged in such policies, but most of the discussion has centered on the use of such policies. versus Japan, especially in the auto trade.
Beason notes that policymakers in Japan have abandoned industrial policy, viewing the policies as costly, unsuccessful, and an obstacle to relations with the United States. He explains that Japan has a renewed interest in industrial policy, at least when it comes to semiconductors, due to the emergence of China and the decline of the semiconductor industry in Japan. Beason concludes: âThis renewed interest does not change the historical economic record: industrial policy in Japan has not been successful.