Japan's economic success: Myths, facts and realities

Multinational Business Review, Spring 1994 by Herbig, Paul, Milam, Robert

MYTH: Japan's Industrial Policy is the Key to its Economic success and should be emulated by the United States.

FACT: Japan's Ministry of Industry and International Trade (MITI) has for decades sponsored a national industrial policy which selects winners and losers, provides economic incentives and inducements for private industry to compete in winners, while allowing losers time to shed painlessly the losing units. MITI was influential, important and a positive force during the fifties and into the sixties by picking and creating winners with low-interest loans, access to foreign exchange, licensing, tax breaks, protection from foreign competitors among other favors.

REALITY: The implementation of such of policy depends to a large extent on the tradition of acquiescence to the government's will by the Japanese business community--an identity of interest developed by belonging to common sociopolitical institutions and sharing common ethnic interests. This bond is fortified by an incestuous relationship among government bureaucracies, corporate management, and the elected political leadership. None of these systems exist in the United States, nor are they necessarily desirable (Sethi et all 1984). MITI also is not infallible. In the 1950's MITI tried to dissuade SONY from licensing the transistor, believing the company to be too small to succeed. In the 1960's MITI decided that two automobile companies were enough and pressured Honda to quit the industry. MITI can no longer steer companies since the private sector companies are simply too large. An effective industrial policy rests on the wholehearted support of the people and must fit the traditions and tendencies of the people. This it does in Japan. American private companies will not tolerate elite interventionist bureaucrats with the power and vagueness they have in Japan. A policy that calls for a significant expansion in the role in the U.S. government in the private sector is likely to be unproductive, unworkable, and incompatible with American cultural and sociopolitical norms.

MYTH: Japan will be the world power in the 21st century

FACT: Japan is rapidly becoming the world's economic superpower and creditor.

REALITY: Political scientist George Modelski indicates four essential tests for global hegemonic leadership. One is a favorable geography, preferably insular. The second is a cohesive and hardworking society. The third is a lead economy. The fourth is a geo-political strategy of global reach. England has a perfect score. So does the United States. Japan, he concluded, has passed the first three tests, but has failed the fourth. Naohiro Amaya, a former vice minister of MITI argues that a country must satisfy three conditions in order to qualify for world leadership: It must have economic and military power; it must have a viable, exportable economic system; and it must have a distinct, viable, and transferable culture. Japanese traditions, values, and aesthetics are all inaccessible to people of other cultures. The United States shines while Japan falls far short in all three categories (Amaya 1984).