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States and elsewhere: automobiles, consumer electronics, and scien-
tific instruments. 27 Among the policies Japan has used to promote
these infant industries have been the following:
(1) Taxation, financial, and other policies that encouraged extraordi-
narily high savings and investment rates.
(2) Fiscal and other policies that kept consumer prices high, corpo-
rate earnings up, and discouraged consumption, especially of for-
eign goods.
(3) Strategic trade policies and import restrictions that protected in-
fant Japanese industries against both imported goods and estab-
lishment of subsidiaries of foreign firms.
(4) Government support for basic industries, such as steel, and for
generic technology, like materials research.
(5) Competition (antitrust) and other policies favorable to the keire-
tsu and to interfirm cooperation.

Japanese industrial policy was most successful in the early postwar
years when Japan was rebuilding its war-torn economy. However, as
Japan closed the technology gap with the West and its firms became
more powerful in their own right, Japan’s industrial policy became
considerably less significant in the development of the economy. Yet
the population and the government continued to believe that the state
should play a central or at least an important supportive role in the
continuing industrial evolution of the economy.

Corporate Governance and Private Business Practices
The Japanese corporate system of industrial organization differs in
several important respects from that of other industrialized econo-
28
mies. Although its distinctive features have been undergoing impor-
tant changes due to the maturing of the Japanese economy and to the
economic stagnation in the late 1990s, fundamental differences re-
main between the Japanese and Western economic systems. 29 Three

27
An excellent example of Japanese industrial policy has been the government’s pro-
motion of the Japanese automobile industries. During my several stays in Japan, I was
impressed by the flawless condition of Japanese cars. A major reason, I was informed
by Frank Upham, a New York University expert on Japanese law, was a set of govern-
ment policies with respect to auto insurance and inspections that created strong incen-
tives for Japanese consumers to purchase new cars. Then the consumers’ replaced cars
were shipped abroad to Southeast Asia and, in the 1990s, to Russia.
28
Ryutaro Komiya, The Japanese Economy: Trade, Industry, and Government
(Tokyo: University of Tokyo Press, 1990), Part II.
29
Paul R. Krugman, Trade with Japan: Has the Door Opened Wider? (Chicago:
University of Chicago Press, 1991).
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