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supports out of date and low tech firms who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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