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Revisiting Japanese Industrial Development Model: Key Insights for Policymakers

The post-World War II era witnessed Japan's strategic pursuit of industrial policies, leading to decades of remarkable industrial development. In today's landscape of global power and middle power competition, many countries are increasingly turning to industrial policies to bolster their strategic competitiveness. What insights can policymakers glean from Japan's experience?

Firstly, the significance of government-business collaboration cannot be overstated. Japan's model of close cooperation between government and businesses in various sectors empowered bureaucratic leadership in the economy. These ties not only identified key sectors for development, such as shipping, automobiles, and telecommunications, but also shielded domestic industries through import controls and barriers to inward foreign investment. In addition, this model provided Japanese companies with the necessary financial and human resources to expand and compete effectively.

Secondly, public participation and accountability within governance are crucial elements. Post-war Japan allowed the public to express their views, which could be forwarded to the top. When central policymakers made their decisions, they seriously considered public opinion – both positive and negative, and, to a certain extent, constrained by the public. Thanks to this institutional design, post-war Japan saw limited corruption among bureaucrats. Ultimately, the public, in general, had a great trust in the Japanese policymakers. This led to a virtuous cycle in Japan during the following decades after WWII.

Thirdly, the predominance of private ownership played a significant role. Despite establishing state intervention through the Economic Planning Agency in 1995, a major part of the Japanese economy was still in private hands, which developed widespread efficiency and enhanced productivity in industry, spilling over into the entire Japanese society. It is important to note that, however, strategic sectors critical to national security should be overseen and managed by the central or federal government, as argued here and here.

While these aspects of the Japanese model offer valuable insights for policymakers globally, there's a critical lesson to learn from Japan's historical misstep. Japan's reliance on studying and licensing foreign technology rather than investing substantially in domestic basic science and technology, as Harvard’s Ezra Vogel pointed out, limited its ability to develop cutting-edge technologies. This approach left Japan vulnerable in the 1980s. Indeed, during periods of heightened geopolitical competition or de-globalization, the model of heavily depending on foreign technology will be extremely risky, leading to some domestic industries being strangled by foreign powers.

In conclusion, policymakers should heed the lessons of Japan's industrial evolution, emphasizing government-business collaboration, public participation, accountability, and strategic investment in R&D to navigate today's complex global landscape effectively.

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