METI’s Miraculous Comeback and the Uncertain Future of Japanese Industrial Policy

Abstract

If the industrial policy of Japan’s Ministry of International Trade and Industry (MITI) gained acclaim for having created an “economic miracle” in the 1950s and 1960s, a spirited counterattack arose in the 1980s, and by time of the bursting of the financial bubble in the 1990s, industrial policy increasingly looked like an outmoded and discredited relic. Events then took an unexpected turn: MITI (since 2001 called the Ministry of Economy, Trade and Industry, or METI) managed to turn a series of bureaucratic and political reforms and upheavals into opportunities for institutional rebirth, while once-proud Japanese companies struggled. Yet in Japan’s aging, slow-growth economy, reigniting dynamism has proved difficult. Efforts to enhance economy-wide productivity have made some progress, but have yet to overcome the obstacles to growth. METI’s expanded jurisdiction and reinforced political support have been matched by demands to enhance the viability of Japanese firms to meet the new competitive pressures and security threats from China and Korea, and even the United States. In some cases, notably the electronics industry, industrial policy has ended up bailing out failing firms. In the crucial automobile industry, in contrast, industrial policy has made significant contributions even as the leading firms have gone global, but METI has received little credit. Continued political support is not guaranteed. Outside Japan, the international financial crisis of 2008–2009, the failure of many developing countries to surmount an apparent middle-income trap, and the rise of China have converged to spark renewed interest in industrial policy and the experience of Japan.