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fostering new businesses and high tech industry it supports out of
date and low tech firms who have political clout.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.