August 10, 2002


Japan directs a route to recovery (Michiyo Nakamoto and David Pilling, August 8 2002, Financial Times)
Unless Japan can create high value-added products through technical and scientific innovation, it will not be able to combat long-term economic decline, says Atsuo Shibota, a director of policy co-ordination at the Ministry of Economic Trade and Industry (Meti). The government is proposing to spend Y24,000bn ($200bn) over the next five years on four sectors: information technology, environment, biotechnology and nanotechnology.

The policy is potentially flawed on two counts. First, it is not clear that a government is well placed to micromanage in this way. Forty years after Japan's spectacular transformation into an industrial power, a debate is still raging as to whether Japanese industry was successful because of, or in spite of, the guiding hand of government.

Last month, a report issued by the finance ministry's policy research institute suggested that Miti, Meti's forerunner, may have hindered growth by cosseting industries from competition and providing subsidised loans, thus ensuring that the inefficient survived. "The Japanese model was not the source of Japanese competitiveness but the cause of our failure," the report says. The study echoes the findings of Can Japan Compete?, a book by Michael Porter, Hirotaka Takeuchi and Mariko Sakakibara, which concluded that Japan became most competitive in industries where Miti did not meddle. [...]

[E]ven if government support can be helpful, the question remains: does Japan have what it takes to compete in its chosen fields? Here, too, the signs are not universally encouraging. Despite considerable investment - in fiscal 2000, government research spending totalled about Y3,500bn - Japan has had little success in nurturing new sectors.

This would be why it's not a good thing for China to be the new Japan. Posted by Orrin Judd at August 10, 2002 10:05 AM
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