What The United States 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it supports out of date and low tech firms who have political clout.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.

Category: History