In Japan, industrial policy is a reflection of economic nationalism. This means that one gives priority to the interests of one's own nation but not necessarily involving protectionism, trade controls or economic warfare. Nationalism may mean these things, but it is equally possible that free trade will be in the national interest during particular periods as it was for Japan from the 1970's onwards. Industrial policy is however a recognition that the global economic system is never thought of merely in terms of the freely competitive mode.

There are two basic components to Japanese industrial policy, corresponding to the macro and micro aspects of the economy. The Japanese call the micro aspect industrial rationalisation policy and the macro aspect industrial structure policy.

Industrial rationalisation means state intrusion into the detailed operations of individual operations with measures intended to improve these operations (or even on occasion to abolish the enterprise).

After the end of the cold war the Japanese economy was hit by the worst economic stagnation in the post-war period. By 1998 Japan had entered its first economy contracting recession in 25 years. The system that had brought dazzling rates of growth was now seen to contain many flaws. Much of the success of Japanese development depended on the willingness of the US to absorb its huge exports in exchange for Japan's support in containing communism. Now they were no longer willing to tolerate the large trade surpluses they had with Japan. Japanese banks faced a profit squeeze in the late 1980's as deregulation increased the rate of interest needed to be paid to their depositors. To compensate for this banks lent aggressively to the property sector. They also invested in rapidly rising Japanese equities which could used in accounting for their capital adequacy ratios. Once the 'bubble' economy caused by rising equity and property values collapsed the banks were left with huge bad debts.

Japan has long relied on four industries for the bulk of its exports: cars, electrical goods, precision products and steel. However an appreciating yen and competition from other Asian countries have now forced the keiretsu to move the manufacturing base overseas. Now the bureaucrats at MITI are hard at work trying to identify future growth industries. However MITI now has a much weaker voice in policy making, and has also had many failures to account for. MITI's encouragement in the late 1970's may have helped Japan win a temporary lead over American memory chip makers but they totally neglected the much more lucrative microchip sector in which American companies like Intel have a now almost insurmountable lead. In the early 1980's MITI made heavy investments to develop a fifth generation computer and leap ahead in artificial intelligence. The effort produced nothing.

Some topics in this essay:
Investment Committee, Bank Japan, Ralf Dahredorf, Europe Japan, Investment MITI, World War, Korean War, Meiji Restoration, Deutsche Dresdner, Allied Powers, industrial policy, foreign exchange, japanese industrial, japanese industrial policy, rational system, market rational, plan rational, industrial structure, market rational system, late 1970's, government subsidies, shocks 1973, plan rational system, oil shocks 1973,