MITI and the Japanese miracle

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other country.

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Industrial structure policy, on the other hand, is more radical and more controversial. It concerns the proportions of agriculture, mining, manufacturing, and services in the nation's total production; and within manufacturing it concerns the percentages of light and heavy and of labor-intensive and knowledge-intensive industries. The application of the policy comes in the government's attempts to change these proportions in ways it deems advantageous to the nation. Industrial structure policy is based on such standards as income elasticity of demand, comparative costs of production, labor absorptive power, environmental concerns, investment effects on related industries, and export prospects. The heart of the policy is the selection of the strategic industries to be developed or converted to other lines of work.

Robert Gilpin offers a theoretical defense of industrial structure policy in terms of a posited common structural rigidity of the corporate form of organization:

The propensity of corporations is to invest in particular industrial sectors or product lines even though these areas may be declining. That is to say, the sectors are declining as theaters of innovation; they are no longer the leading sectors of industrial society. In response to rising foreign competition and relative decline, the tendency of corporations is to seek protection of their home market or new markets abroad for old products. Behind this structural rigidity is the fact that for any firm, its experience, existing real assets, and know-how dictate a relatively limited range of investment opportunities. Its instinctive reaction, therefore, is to protect what it has. As a result, there may be no powerful interests in the economy favoring a major shift of energy and resources into new industries and economic activities.

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Whether this is true or not, MITI certainly thinks it is true and considers that one of its primary duties is precisely the creation of those powerful interests in the economy that favor shifts of energy and resources into new industries and economic activities. Like Gilpin, MITI is convinced that market forces alone will never produce the desired shifts, and despite its undoubted commitment in the postwar era to free enterprise, private ownership of property, and the market, it has never been reticent about saying so publicly (sometimes much too publicly for its own good).

Although some may question whether industrial policy should exist at all in an open capitalist system, the real controversy surrounding it concerns not whether it should exist but how it is applied. This book is in part devoted to studying the controversy over means that has gone on in Japan since industrial policy first appeared on the