- Picking Winners? From Technology Catch-up to the Space Race in Japan
Saadia Pekkanen endeavors to determine if the postwar Japanese government relied primarily on political or on economic criteria to choose which industrial sectors to favor. Do governments make their selections based on the potential for knowledge spillovers and technology-led economic growth? Or, do governments base their selections on political considerations, e.g., supporting a given industry will get votes?
In her book, Pekkanen takes on and tests aspects of classical trade theory and endogenous policy theory. She rebuts those who argue that the economically troubled 1990s revealed that postwar Japanese industrial policy was unsuccessful and thus irrelevant as a developmental or policy model. Indirectly, she also raises important issues about the effect of both the international environment and industrial competitiveness on a government's [End Page 564] ability to select and implement different types of trade and/or industrial policies (TIPs).
She uses quantitative and qualitative measures of the causal effect of TIPs to conduct her study. For her econometric analysis, she selects eight TIPs as dependent variables to measure the industrial selection process across 12 industrial sectors at a two-digit SIC level of aggregation. The eight TIPs are net subsidies, net transfers, tax rates, Japan Development Bank loans, subsidized borrowing, tariffs, quotas, and R&D subsidies. Her independent variables are growth, value-added, wages, spillover potential, votes, amakudari, dantai, lobbying amount, and TIP legacies. She supplements her econometric analysis with qualitative industry case studies of the 12 industrial sectors.
Pekkanen's careful analysis successfully demonstrates that Japanese patterns of industrial selection were determined more by the economic potential of an industry than by political factors. She shows only two TIPs "captured" by political criteria, tariffs and subsidized borrowing, a result that is not surprising as these two TIPs are among those most easily used by politicians to subsidize and support individual companies. However, her conclusions, as she herself clearly states, must be seen in the context of the strong consensus among politicians, bureaucrats, and industry in postwar Japan on the absolute need to remain and become internationally competitive by moving into higher value-added sectors and by stimulating technology-led economic growth.
Pekkanen's analysis makes its biggest contribution to relevant economic theory by developing and applying a quantitative measure to show the importance and consistent use of economic rather than political criteria in selecting industries to support. She also contributes to existing literature through her excellent use of econometrics to compare and evaluate which selection criteria mattered more across all industries—not just one—in the postwar period. In doing so, she takes a complicated and difficult question that scholars have not often attempted to address quantitatively, and successfully tests it. For theorists, the results of her analysis support those aspects of new international economics that, unlike classical trade theory, suggest there are strategic sectors in which wealth may not be competed away or level out over time among nations because of the importance accorded to economies of scale, the advantages of experience, and the potential for innovation (p. 11). This conclusion furthers our understanding of, and perhaps provides justification for, the use of TIPs to improve the international competitive position of domestic industries. The cross-sectoral analysis in chapter three also contributes to existing literature by providing new insights into which criteria were the most important in selecting industries to receive TIPs. While she successfully and correctly chooses to use cross-sectoral [End Page 565] data at the two-digit SIC level, the reader should remember that frequently TIPs were applied at the subindustry level to areas with the highest value-added potential, e.g., passenger cars rather than trucks, and synthetic fibers rather than cotton textiles.1 It is often subindustries and individual companies within them that lead innovation. The book's insights are worth the effort it takes for nontheorists to wade through the analysis that, as the author admits, at times seems very cryptic to those not versed...