Machinery Industrialization and Industrial Policy

Author Name KAWAMURA Satoshi (Fellow, RIETI) / TAKEDA Haruhito (Faculty Fellow, RIETI)
Creation Date/NO. March 2016 16-J-029
Research Project Historical Study on Japan's Trade and Industrial Policy: From an international perspective
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This paper focuses on the development of the machinery industry in the postwar high growth period of Japan, and aims to identify the significance of the government's industrial policy in bringing about this major shift in the nation's industrial structure. By reviewing relevant existing studies, we will first identify the overall framework of support measures under the Act on Temporary Measures for the Promotion of the Machinery Industry (Act No. 154 of 1956) and show how a two-step screening procedure in selecting eligible companies—i.e., technical screening and financing screening—facilitated the introduction of appropriate technologies to the machinery industry, thereby improving the competitiveness of machinery products in terms of both quality and prices. We will also examine how these positive effects on the targeted industry helped user industries—e.g., finished products manufacturers that use machinery tools and equipment as parts and components for their products—to improve their products and reduce production costs. In this regard, it should be noted that the rationalization of basic industries such as steel, petrochemical, and electricity generation and the resulting lower material prices also helped reduce the cost of machinery production. Thus, the remarkable development of the machinery industry in the high growth period should not be attributed solely to the support measures specifically targeted at the machinery industry. Instead, it should be seen as the fruit of multiple industrial policy measures. While the support measures for the machinery industry as manufacturers of parts and components contributed to the development of user industries as manufacturers of finished products, a closer look at those finished products manufacturers engaging mainly in processing and assembling reveals that cost reductions via enhancing labor productivity were very limited because labor's share in their income was on the rise at the time. This suggests that the growth of Japanese finished products manufacturers in the high growth period and their rise in international competition were achieved mainly through improved efficiency in their purchasing activities, namely, lower costs of parts and components, leaner inventories, and reductions in the related financing costs. And it is for this reason that the role of the Act on Temporary Measures for the Promotion of the Machinery Industry was considered so significant. Meanwhile, the expansion of such labor-intensive processing and assembling operations led to sustainable job creation, which in turn provided the foundation for high economic growth.