Page 175 - Global Political Economy_Understanding The International Economic Order

CHA PTER S EVEN
ing to Johnson, Japan is a capitalist developmental state rather than
an American-style capitalist regulatory state. He credits MITI and
other Japanese bureaucracies for Japan’s outstanding postwar eco-
nomic success. MITI and other agencies employed such techniques as
import protection, government subsidies, and low-cost financing to
promote rapid industrialization and development of the high-tech sec-
tors. In the opinion of Johnson and other revisionists, the most im-
portant instrument of Japan’s successful industrial policy was the de-
vice of administrative guidance, which was utilized to encourage and
sometimes pressure private firms to invest in those industrial and
high-tech sectors characterized by high value-added and favored by
the government. In addition, Japan’s export success has been due to
its neomercantilist strategy of export-led economic growth.
On the other side of the debate, many American and some Japanese
economists argue that Japanese economic success has been due to the
fact that Japan pursued market-conforming economic policies and
21
thus got the economic fundamentals correct. They call attention to
Japan’s high savings and investment rate, superior management and
entrepreneurship, and excellent system of education as bearing the
primary responsibilities for Japan’s success. In addition, the Ministry
of Finance (MOF) has pursued stable and prudent macroeconomic
policies. Explaining Japan’s export success, many note that Japan, as
a resource-poor and capital-skilled, labor-rich economy, has had a
comparative advantage in manufacturing and industrial innovation. 22
According to this position, Japan’s industrial policy had very little to
23
do with its economic success and has even wasted resources. Nota-
ble examples of failure are found in MITI’s efforts to promote fifth-
generation computers and a petrochemical industry. A more infamous
example is provided by MITI’s effort to prevent Honda from becom-
ing an automobile producer, because MITI believed that Japan could
not support another automobile company!
There is considerable evidence on both sides of this debate, but
the outcome remains inconclusive because there is no counterfactual
21
Hugh Patrick, Asia’s New Giant: How Japan’s Economy Works (Washington,
D.C.: Brookings Institution, 1976); and Edward F. Denison and William K. Chung,
How Japan’s Economy Grew So Fast: The Sources of Postwar Expansion (Washing-
ton, D.C.: Brookings Institution, 1976).
22
Gene M. Grossman, “Explaining Japan’s Innovation and Trade: A Model of Qual-
ity Competition and Dynamic Comparative Advantage,” Bank of Japan, Monetary and
Economic Studies 8, no. 2 (September 1990): 75–100.
23
A valuable assessment is provided by Daniel I. Okimoto, Between MITI and the
Market: Japanese Industrial Policy for High Technology (Stanford: Stanford University
Press, 1989).
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