What the U.S. can learn from Japan


Japan and the Four Little Dragons in order to achieve their 
industrialization goals have a diverse set of policies ranging from 
limited entitlement programs to a education and government bureaucracy 
that stresses achievement and meritocracy. But one of the most 
significant innovations of Japan and the Four Little Dragons is there 
industrial policy which targets improving specific sectors of the 
economy by focusing R&D, subsidies, and tax incentives to specific 
industries that the government wants to promote. The United States 
could adopt some of these industrial policies to help foster emerging 
high tech businesses and help existing U.S. business remain 
competitive with East Asia. 
 In Japan the government both during the Meiji period and the 
post World War II period followed a policy of active, sector selective 
industrial targeting. Japan used basically the same model during both 
historical periods. The Japanese government would focus its tax 
incentive programs, subsidies, and R&D on what it saw as emerging 
industries. During the Meiji period Japan focused it's attention on 
emulating western technology such as trains, steel production, and 
textiles. The Meiji leaders took taxes levied on agriculture to fund 
the development of these new industries. Following World War II
Japanese industries used this same strategic industrial policy to 
develop the high-tech, steel, and car industries that Japan is known 
for today. Some American industries are currently heavily supported by 
the government through subsidies and tax breaks to farmers, steel 
producers, and other industries that have been hurt by foreign 
competition because they are predominantly low-tech industries. But 
this economic policy of the U.S. is almost a complete reversal of the 
economic policies of Japan and the Four Little Tigers; instead of 
fostering new businesses and high tech industry it supports out of 
date and low tech firms who have political clout. The existing 
economic policy of the United States fails to help high tech 
businesses develop a competitive advantage on the world market instead 
it stagnates innovation by providing incentives primarily to existing
business. The structure of U.S. industrial policy like the structure 
of an advance welfare state has emphasized rewarding powerful lobbying 
groups and has not targeted emerging sectors of the economy. The 
current U.S. industrial policy is a distribution strategy and not a 
development strategy. 
 Instead of this ad-hoc industrial policy the United States 
should follow Japan's model of strategic targeting of emerging
technology. The U.S. instead of pouring its money into subsidies and 
tax breaks for failing low-tech industries should provide loans, 
subsidies and R&D money for firms that are producing high technology 
products. Unfortunately, there are several impediments to copying 
Japan's model: first, tremendous political pressure from interest 
groups forces politicians to give corporate welfare to failing 
established firms and not emerging firms. Second, it is difficult for 
a government to select which sectors of the economy it will target. 
But despite these obstacles the U.S. is now confronted with trading 
powers who have coordinated government programs to foster the 
development of new technology; in comparison the U.S. governments 
reliance on individual initiative and a lack of government support for 
new industries has allowed Japan and the Four Little Dragon's to
catch up to the U.S. in the area of high technology. In the coming 
years the U.S. could not just lose its advantage but fall behind if it 
fails to redirect government subsidies from failing firms to emerging 
sectors of the economy copying Japan's industrial development model.


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