Throughout the post-war period, the Japanese government has invoked a fairly sophisticated system of interventionist economic policy to promote steady growth, technological innovations, and international competitiveness. Such policy initiatives have benefited from cooperative response by the private sector. Given the remarkable post-war accomplishments of the Japanese economy, rapid economic growth in the 1960s and, thereafter, a smooth adjustment to international competition in the face of frequent and often unforeseeable external shocks, it is natural that the so-called Japanese industrial policy has become the focus of international concern.

The purpose of this is to present a brief overview and a concise evaluation of Japanese industrial policy. Since there already exist sizable contributions in English on what Japanese industrial policy is all about, how it evolved and transformed itself through time, and how it is affecting the international competitiveness of the other countries, we will focus here on a theoretical evaluation of Japanese industrial policy, citing concrete historical instances only for illustrative purposes.

The chapter is divided into four sections. In Section I, several basic concepts important for an economic analysis of industrial policy are introduced. Section II presents a brief historical account of Japanese industrial policy. Section III turns from description to evaluation. In particular, we study three important aspects of Japanese industrial policy, namely, welfare criteria for industry selection, regulatory activities to keep “excessive competition” under control, and informational activities by the government. Concluding remarks are in Section IV.

Industrial policy: some basics

A definition

For all the concern about industrial policy, it is rather perplexing that a standard definition of the concept has never been well established.