Study on the History of Making Industrial Competitiveness Policies

Faculty Fellow, RIETI

From Industrial Revitalization to Enhancement of Industrial Competitiveness

I would like to introduce the research project which we are working on titled "The Policy-Making Process of the Industrial Competitiveness Policies in Japan." The project mainly covers the Heisei era (1989-2019) but has a taste of the “Showa era” (1926-1989) as explained below.

As a part of the growth strategy under Abenomics, the government of Japan (the second Shinzo Abe administration) enacted the Act on Strengthening Industrial Competitiveness in December 2013. The Act aims to bring Japanese industry out of its prolonged stagnation and put it back on the track of sustainable growth through promoting deregulation, vitalization of capital investment, industrial and corporate reorganization, and industrial metabolism.

Not limited to the second Abe administration, industrial competitiveness policies have been maintained for the long term and continue until the present.

Before the Abe administration, industrial competitiveness policy originated from the Act on Special Measures for Industrial Revitalization, which was enacted in October 1999. At the time of its enactment, the Japanese economy was in a long period of stagnation after the bubble economy collapsed and bad loans had grown into a serious problem triggered by the instability in the financial system which occurred from 1997 to 1998, bankruptcies of Sanyo Securities and the Hokkaido Takushoku Bank, voluntary closure of Yamaichi Securities, and temporary nationalization of the Long-Term Credit Bank of Japan and the Nippon Credit Bank. Bankruptcies of many companies were expected in the bad-loan disposal process, but, in addition to financial revitalization, corporate rehabilitation and industrial revitalization through the organization of useful corporate resources and facilitating business-unit M&As were prioritized in order to prevent further deterioration of Japan's industrial competitiveness. The Act on Special Measures for Industrial Revitalization aims to support and promote such moves for industrial revitalization from the institutional framework, including taxation.

The developments during the period prior to the second Abe administration were compiled into a discussion paper in our previous research project. Please refer to it if you are interested.

("The Industrial Revitalization Policy in the 2000s" by Junko Watanabe and Haruhito Takeda; RIETI Discussion Paper Series 21-J-030; July 2021)

In the middle of the 2000s, the disposal of bad loans was mostly completed, and the nature of the government's industrial revitalization policy was altered to a policy for enhancing industrial competitiveness. Business reconstruction and efficient utilization of corporate resources led to the improvement of productivity and growth of the Japanese economy as a whole. Accordingly, system development and expansion were positively promoted not only as temporary measures after the collapse of the bubble economy but as permanent measures. Furthermore, the policy focus was placed on commercialization of cutting-edge technologies, strengthening of industrial technologies, overseas business expansion of companies, and other initiatives, with the aim of enhancing Japan's industrial competitiveness, in addition to reorganization of domestic industries. The Act on Strengthening Industrial Competitiveness enacted in 2013 can be positioned as an extension of this history of Japanese economic policies.

Also, under both the administrations of Yoshihide Suga which succeeded the Abe administration in September 2020, and the current administration of Fumio Kishida, the Act on Strengthening Industrial Competitiveness has been maintained while having been amended twice (in 2018 and 2021), with new features added such as the shift to a "Green Society," responses to digitalization, and reconstruction of businesses toward the "New Normal" after COVID-19. However, as there has not been sufficient time to analyze the developments during the last three years, they are excluded from the coverage of this research project.

This research project not only focuses on the process of the enactment and amendment of the Act on Strengthening Industrial Competitiveness, but broadly covers related industrial policies. When considering recent international trends and the situation of Japan's industries, policy issues concerning industrial competitiveness are very serious and important. We would like to clarify the past developments, the systemic structure of policy making, and the policy effects, with the aim of making some suggestions related to the current and future policies from the perspective of historical study.

(This research project is also outlined on the following webpage.

Words and Passion are Important in Making Policies

At the beginning of this column, I stated that the project "has a taste of the Showa era. This “taste” may be a result of our research methodology.

In this research project, we are trying to understand the background of policy formulation and the policy ideas of bureaucrats through interviews with individuals who were policymakers at the time. Additionally, we aim to describe Japan's policy history by analyzing and interpreting descriptive materials, such as a large variety of policy documents and databases of newspaper and magazine articles.

In recent years, data science has been attracting people's attention and statistical analyses using figures and mathematics are considered to be scientific and objective in the economic field as well. However, this research project, which adopts the orthodox descriptive method of a historical study, may give the reader a retrospective taste of the Showa era.
Nevertheless, I dare to say that our method is not largely contradictory to the Evidence-Based Policy Making (EBPM) approach that the government promotes.

I must admit that the information we collect through interviews with policymakers may contain subjective views and faulty memories, and that I myself seem to have a tendency to accept the policies of the Ministry of Economy, Trade and Industry (METI)and the work of ministry bureaucrats as being appropriate or positive in their effects without questioning their validity.

However, once, when I briefly introduced the content of our study at a certain meeting, one of the meeting participants (an elderly person) was openly skeptical, saying "You are talking as if policies of METI were good." Many people who are not acquainted with bureaucrats and inner workings of the ministries have somewhat negative feelings about policy intervention, even if they are not neoclassical economists who have negative stances regarding policy intervention. But I was surprised at the unexpected gap in our perception of the value that I feel they contribute.

Subjective views or biased views that inevitably appear in authoring a paper can be corrected or prevented to a certain degree. It is expected that inappropriate material will be weeded out through cross-checking materials, having interviews with multiple people of different views, or otherwise examining as much information as possible, and by being reviewed by a large number of critical experts both prior to and after publishing. As we have followed these practices, I do not consider them to be serious problems.

Rather, I feel that the descriptive analysis method that relies on potentially subjective descriptions should be increasingly valued. During policymaking and conducting economic diplomacy not only in Japan but on a worldwide level, decisions are made through negotiations and cooperative relationships through the “words” that are exchanged. In areas of concrete importance relating to corporate secrets and technological development, alliances, and industrial competitiveness, beyond mere presentation skills, negotiators' expressiveness and capacity to understand counterparties and persuade them are required.

For that purpose, I believe that it is advantageous to structurally analyze, ascertain and recognize the relationships between countries, between companies, and between people, including their historical developments. In negotiations between people, their humanity and passion in obtaining sympathy and trust from counterparties may be one factor in deciding things. In this research project, I place importance on and look forward to interviews in which I can directly communicate with bureaucrats of METI and other related individuals, because I will be able to feel their humanity, policy ideas, and calm but passionate attitudes.

May 24, 2023
>> Original text in Japanese

June 13, 2023

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