#92-DF-13 "Three Stages of Japan's Industrial Policy After The World 
           War ­¶" 
          (Ryutaro Komiya, March 1992.)

A WHOLE SENTENCE

ABSTRACT

    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.