Three Stages of Japan's Industrial Policy After The World War Ⅱ

Japan's industrial policy has not been an unchanging entity over the forty-five years since the end of WWII up to the present, but has been changing a great deal in its tasks, contents and tools to meet the changing needs of the times. As time passed, new approaches to industrial policy were adopted, and older ones altered or abandoned.

In the period of reconstruction and economic independence immediately after the WWII (Stage 1), the main task of industrial policy were to establish basic economic and social framework for Japan's economic growth as a free market economy. Wartime economic controls were liquidated, and industrial rationalization policy was pursued. In order to achieve international balance-of-payments equilibrium various measures to promote export and restrict import were taken. These promotive and restrictive measures for the balance of payments reasons would have been unnecessary, if a more realistic yen exchange rate rather than the overvalued rate of 360 yen to one U.S. dollar had been adopted.

In the "high-growth" period (Stage 2: 1955-1973), two "Leitmotifs" or two currents of industrial policy were running: the current of free enterprise and market mechanism (the westerly wind) and the current of the "industrial structure" policy (the easterly wind). The industrial structure policy, which was influenced by the easterly thoughts, intended to establish a desirable industrial structure in Japan, by giving heavy- and chemical-industries preferential treatments such as protective border measures, priority in allocation of funds and foreign exchanges, and expansion of domestic demand. What actually happened, however, was that the westerly wind gradually overwhelmed the easterly wind towards the end of this period, because of the economic rationale, strong vitality of Japanese private enterprises and the phasing out of policy leverages.

In the period beginning after the first oil crisis (1973-1974) up to the present (Stage 3), Japan has become a major, mature industrial and economic power, and its economy has been increasingly integrated with the rest of the world. Most of the issues of Japan's industrial policy in this period corresponded to situations of what is called "market failures" in economic theory, and the policy measures were deployed for the purpose of "problem solving" in such situations. Although industrial policy authorities lost most of their leverage toward individual enterprises, the expected roles of industrial policy have become more numerous and complex and its contents and measures more diversified and sophisticated.