Outstanding Industrial Policy of Japan The role of the government is very important in the development of supporting industries for each country, reflected in the formulation of policies
Analysis of industrial policies of East Asian counfr1es
a Typical industrial policies of some countries in East Asia a.1 Outstanding Industrial Policy of Japan
The government's role is crucial in developing supporting industries within a country, as evidenced by effective policy formulation The success of these industries largely hinges on robust supporting industry policies This article examines Japan's perspectives and policies regarding the development of supporting industries, highlighting its cultural and geographical similarities with Vietnam Key lessons for Vietnam's own supporting industry development are drawn from Japan's experiences.
In the late 1950s, Japan implemented significant technological advancements and a diversified industrial policy aimed at strengthening its domestic industrial base and fostering new industries while restructuring declining sectors The industrial policy during this period focused on two main objectives: import substitution and export promotion Priority industries, including synthetic fibers, petrochemicals, machinery, spare parts, and electronics, received government incentives such as tax exemptions, reduced export taxes, low-interest loans, access to foreign technology, and antitrust law exemptions Additionally, the Japanese government emphasized institutional reforms to further stimulate exports.
In the 1960s, industrial policy objectives, particularly for supporting industries, evolved to include protections against liberalization effects While the same policy tools have been historically used for industry protection, a shift in industrial policy has not occurred Instead, Japan adopted horizontal policy tools aimed at enhancing industrial competitiveness through government-facilitated coordination among industries and improved public-private cooperation and information exchange However, vertical policy tools are still employed for specific strategic sectors, such as automobiles and petrochemicals, though their effectiveness has been limited.
In Japan, the market mechanism emphasizes a collaborative approach where the government acts as a supportive partner rather than a controlling entity, embodying the principle that "the government is not the father, but rather the brother to the industries." This philosophy fosters a cooperative relationship between the government and industries, contributing to Japan's industrial growth during this period.
4 general and supporting industries in particular achieved unprecedented growth, with a free economic system firmly established and consolidated
The Japanese government is focused on restructuring its industry and promoting sectors with competitive advantages to integrate into the global economy and create new opportunities Its industrial development policy emphasizes fostering industries with future potential for global market competitiveness, particularly those that can enhance labor productivity through technology adoption and rising demand To support this new industrial framework, the government has implemented tax incentives and credits aimed at refining the industrial structure Additionally, ongoing collaboration between the government and the business community ensures alignment in development goals To boost the competitiveness of Japanese industrial goods, policies encouraging mergers among companies are also in place, aiming for larger scales and enhanced market strength.
Since 1956, Japan has implemented various laws aimed at promoting the machine-building industry and supporting small and medium enterprises (SMEs), including the Law on Promotion of Machine-Building Industry and the Law on Prevention of Delay in Payment of Subcontracting Costs These policies are designed to enhance industrial development and address shifts in the business environment while balancing the interests of SMEs and larger corporations Currently, Japan's strategy focuses on fostering collaborations between domestic enterprises and foreign companies, leveraging affordable foreign spare parts to boost efficiency and competitiveness.
In the five years following World War II, Japan faced significant challenges in recovering from the war's aftermath, including severe shortages of goods and foreign currency To address these issues, the Japanese government introduced the “preferential production plan” (Keisha Seisan Hoshiki, 1946-1948), which prioritized the allocation of materials and financial resources, particularly focusing on the steel and coal industries This strategic allocation helped alleviate production capacity shortages and laid the groundwork for future industrialization Additionally, the government actively intervened in the market by controlling prices, providing subsidies, and managing the distribution of restricted imported materials.
In 1948, the Japanese Government implemented the Dodge Plan, a stabilization policy that eliminated control over new loans and subsidies while enforcing strict budget management, leading to a rapid decline in inflation This era featured an industrial policy characterized by significant direct interventions akin to socialist economic planning, laying the groundwork for the subsequent period of high growth.
During the 1950s, "Targeted Policies" became central to economic strategy, focusing on industries such as steel, coal, shipbuilding, electricity, synthetic fibers, chemical fertilizers, petrochemicals, machine tools, and electronics to enhance international competitiveness Concurrently, the government aimed to establish new industries, including automobiles, electrical machinery, computers, and chemicals, which were identified as "developing industries" with significant growth potential and the need for coordinated investment.
To achieve its economic goals, the Japanese government has implemented various policy measures, including special tax provisions, import tariffs, quotas, accelerated depreciation, and tax exemptions for imported machinery To finance these initiatives, the government established the Financial Investment and Loan Program (Zaisei Touyushi), utilizing funds from postal savings and social insurance accounts While industries benefit from significant protection and privileges, entrepreneurs perceive these measures as temporary, with policies designed for gradual abolition on a set schedule This approach contrasts sharply with Latin American countries, where excessive protectionism tends to be long-lasting.
In the 1960s, Japan witnessed remarkable economic growth, averaging over 12%, prompting its integration into the global economy and membership in GATT and OECD This transition necessitated the liberalization of trade and capital markets, leading to a shift in industrial policy from nurturing industries to fostering their independence in a liberalized environment Key restrictions were lifted on various sectors, including buses and trucks in 1961, color televisions in 1964, passenger cars in 1965, color film in 1971, and large memory integrated circuits, facilitating Japan's economic transformation.
1974 and computers in 1975 capital market liberalization (FDI) started in 1967 and was completed in 1973 Liberalization has created a strong impetus for businesses to prepare for international competition in the coming period
However, in the face of fierce foreign competition, the Ministry of Trade and Industry (MITT) at that time tried to organize the merger of some industries through the
The "Group Plan" aimed to achieve economies of scale and enhance competitiveness, yielding mixed outcomes; while the merger of Fuji Steel and Yahata Steel into Nippon Steel was successful, the auto industry faced challenges During this period, MITI also focused on promoting and modernizing small and medium-sized enterprises to bolster their resilience against international competition, as well as supporting larger companies Antitrust regulations were addressed, and a key feature was the Structural Industry Council established in 1964, which played a crucial role in shaping and implementing industrial policy This council, comprising members from government, private business, academia, and journalism, helped form a consensus on industrial policy and communicated private sector perspectives to the MITI Department of State By 1970, MITI had established 27 boards to facilitate these efforts.
During the period from 1983 to 2000, Japan faced significant economic challenges, including rising oil prices, a stronger yen, and a flexible exchange rate that diminished the competitiveness of heavy industries reliant on energy Key sectors such as chemicals, aluminum, steel, and shipbuilding, categorized as “structured industries,” experienced decreased profitability due to heightened competition from Asian Newly Industrialized Economies (NIEs) Furthermore, rapid industrialization led to social issues like environmental degradation The surge in international trade and foreign direct investment (FDI) introduced new complications, including trade friction and imbalances, particularly affecting the textile and iron and steel industries, which strained relations with the United States In response to these evolving circumstances, Japan's industrial policy shifted focus from growth to broader objectives, emphasizing industrial promotion and regulatory reform, primarily through the Act on Interim Measures aimed at stabilization.
In the early 2000s, Japan's industrial policy shifted focus towards addressing international trade issues, driven by a significant trade imbalance and escalating trade conflicts This led to a strategic emphasis on deregulating markets and enhancing market openness Consequently, the primary goal of Japan's development policy during this period became the promotion of market mechanisms, prioritizing their operation over direct market intervention.
In recent years, the Japanese government has focused on addressing challenges in its industries by promoting industrial consolidation, business restructuring, and increasing the rate of new business startups Key initiatives and legislation established since 2000 include the Law on Special Measures for Industrial Renewal, the Energy Conservation Top Runner Program, and the Innovation Network Corporation of Japan (INCJ) Additionally, programs like Ecopoint subsidies and eco-vehicles have been implemented to support these efforts.
Analyze the achievements and failures from that poÌ1cy
a Achievements and limitations of industrial policies from representative countries in East Asia a.1 Achievements and Limitations of Japan's Industrial Policy
The Japanese government implements targeted policies that align with the specific stages and conditions of the economy, fostering favorable development for both the general industry and supporting industries This strategic approach not only facilitates growth but also mitigates challenges faced during various developmental phases As a result, Japan's industries, particularly supporting sectors, have achieved comprehensive advancements in science, technology, engineering, and research and development.
The Japanese government prioritizes supportive policies aimed at safeguarding small and medium-sized enterprises (SMEs) from global economic impacts and market fluctuations Key initiatives include preferential tax policies, business merger support, accessible loans, and the establishment of protection funds, all designed to ensure the stability and growth of these vital businesses.
The Japanese government is focusing on developing key industries, such as automobiles, electronics, garments, and chemicals, to boost the nation's competitive advantage Essential to this industrial development is the integration and opening of markets, which are crucial for expanding reach and enhancing competitiveness in supporting industries.
Japan's development across various sectors is significantly attributed to its well-educated human resources, bolstered by substantial government investment in the education system This investment emphasizes vocational training, ensuring a skilled and job-ready workforce Notably, private vocational schools comprise 80%-90% of all vocational institutions, with a strong focus on the information technology sector Additionally, independent technical and IT training centers in major cities play a crucial role in training educators, enhancing teaching materials, and researching effective teaching methodologies.
It can be said that the achievements and policies of supporting industry development in Japan, whether successful or unsuccessful, are all valuable lessons for
Vietnam is advancing in its industrial development, particularly in the supporting industry, amidst the ongoing processes of industrialization, modernization, and international integration Despite notable achievements in its industrial policy, there remain significant limitations that need to be addressed to enhance the country's industrial capabilities and competitiveness on a global scale.
Korea's industrial development strategy from 2004 to 2020 aims for an average annual industrial growth of 4.1%, with GDP growth projected between 4.1% and 5.1% By 2020, the goal is to achieve a GDP per capita of $45,000 and for advanced industries to constitute 75% of total export turnover This strategy is expected to position Korea as the 7th largest exporter globally, while also creating 3.6 million new jobs, increasing the employment rate to 67%.
By 2020, Korean economists will evaluate the goals of the new industrial development strategy, but initial results from 2004 to 2008, prior to the global economic crisis, indicate a narrowing industrial growth rate between regions In Seoul, the growth rate declined from 7.5% in 1999-2002 to 6.5% in 2003-2005, while other industrial zones saw an increase from 7.1% to 9.5% Additionally, Seoul's contribution to national industrial growth fell from 3.27% to 2.53% during the same periods, even as national industrial production rose from 4.33% to 5.8% Furthermore, production efficiency in provincial industries more than doubled from 2003 to 2005, increasing by 3.56% in localities compared to a 1.48% rise in Seoul's industrial region.
Between 2003 and 2005, labor productivity in local industrial zones experienced a notable increase, rising from 6.12% to 9.48% In contrast, the industrial zones of Xoun saw a decline in productivity, decreasing from 6.6% to 5.65%.
Those are the initial results of the implementation of the new strategy for industrial development in Korea in the period 2004-2020 a.3 Achievements and limitations in Taiwan's industrial policy
Tarwan has established itself as the leading exporter and the fifth largest supplier of personal computers in the electronics sector In the 1990s, Taiwan shifted its focus to microelectronics manufacturing, emerging as the top global supplier of essential components such as computer motherboards, monitors, scanners, and mice By 1995, Taiwan had become the third largest supplier of computers, with exports valued at $19.7 billion Additionally, that same year, Taiwan produced $3.3 billion worth of semiconductor components and initiated mass production of 16 Mbit DRAMs.
30 International experience in the policy of promoting the production of components
Taiwan's bicycle industry ranks among the top three global suppliers of high-end bicycles, while the country is also focusing on expanding its markets in semiconductors, optoelectronics, displays, and electronic component packaging Notably, the company has successfully designed 8-inch silicon wafers, highlighting Taiwan's innovative capabilities in technology.
The Industrial Policy must accurately reflect the State's role in economic development and industrial growth over time, with its effectiveness hinging on the market's maturity and the State's regulatory capacity In underdeveloped markets, the State should actively drive economic development through resource allocation and state-owned enterprises However, as the market evolves, State intervention should diminish, allowing the market to serve as the primary adjustment mechanism, with the State acting as a supplementary solution Industrial policy should facilitate market operations, as evidenced by Japan, China, and South Korea, where initial strong State intervention during early economic reforms was necessary due to underdeveloped markets Over time, these governments transitioned to using indirect, supportive tools for resource allocation, such as government policies and credit systems, to foster sustainable growth while minimizing distortions.
To foster economic growth, it is essential to continuously innovate industrial policy measures and tools China's experience demonstrates that in the absence of favorable overall economic conditions, altering initial circumstances can establish a more conducive development environment By creating special economic zones, the Chinese government has successfully attracted and utilized both domestic and foreign resources, enhancing the growth potential of targeted industries in these regions and subsequently stimulating broader economic development.
Third, industrial policy needs to be flexible to new contexts The formulation and implementation of industrial policy in Japan and China
The industrial policies of the country have evolved over time, aligning with the trends of regional and global economic integration Initially, these policies were inward-looking, serving as a preparatory phase for future participation in global competition through export-oriented strategies As a result, governments have concentrated on leveraging their comparative advantages at each stage of development.
In the initial phases of industrial development, countries leveraged static comparative advantages, including natural resources and labor Subsequently, they implemented policies to foster dynamic comparative advantages, advancing industries from low-tech to high-tech, transitioning from importing to exporting technology, and innovating new technologies Additionally, governments have strategically utilized foreign investment to enhance industrial growth while maintaining strict regulations to ensure increased production capacity without excessive reliance on foreign entities.
To enhance the development of electronic supporting industries, it is crucial to attract foreign investment, which serves as a vital resource Establishing strong connections between foreign multinational companies and local enterprises should be prioritized Vietnamese businesses must strive to enhance their capabilities to become reliable suppliers for FDI manufacturers and international clients Additionally, the government should implement supportive policies to aid these enterprises The goal is to evolve the electronic industry from basic assembly operations for foreign orders to becoming an indispensable partner within the global production network.
Lessons for Vietnam Jl
Introduction of Vietnam industry from 1986 to NOW cece 31 a Overview oÊ Vietnam's mndustry before and after 1986
a Overview of Vietnam's industry before and after 1986 (industrialization and modernization)
Over the past few decades, industrialization and modernization have emerged as key development trends globally In Vietnam, the doi moi process has played a crucial role in implementing strategies for industrialization and modernization, significantly contributing to the nation's development by alleviating poverty and enhancing the standard of living This comprehensive transformation aims to elevate Vietnam from a predominantly agricultural society to an advanced, modern industrial economy, fostering technological progress and socio-economic growth.
Since the early 1990s, the focus on industrialization and modernization has evolved in response to new contexts and demands The 13th Party Congress emphasizes the need to advance these efforts by leveraging scientific, technological, and innovative progress.
In the modern era, no country can pursue industrialization in isolation; it must be integrated into the global production and business chain For Vietnam, this integration is particularly critical, as the nation's economy is deeply connected to the world economy, with import and export turnover accounting for 160-200% of GDP in recent years This highlights the urgent need for the development of the industrial sector.
Vietnam's industrial development can be categorized into three distinct stages, each marked by unique characteristics The first stage, known as the pre-doi moi period, spans from 1960 to 1986, during which the country focused on initial industrialization efforts.
Despite gaining independence in 1945, Vietnam remained at war with France until
In 1954, the nation was split into two conflicting regions, each adhering to distinct political and economic ideologies Amid this division, the North implemented socialist industrialization to bolster its efforts for reunification, particularly following U.S intervention in the South starting in 1964.
During the period of French colonial rule, Vietnam's economy was primarily centered on subsistence agriculture within village communities The French administration enhanced agricultural output, focusing on rice and rubber production in the south, while in the north, they prioritized manufacturing, predominantly coal mining for export purposes.
80 years of colonization and war, the country was devastated: minimal infrastructure, a poor and mostly illiterate population, and limited entrepreneurship
Scientific and technical research primarily aims to support heavy industry and military efforts During this period, significant industrial advancements were largely made possible through foreign aid from Vietnam's socialist allies, including China, the Soviet Union, and other Eastern Bloc countries.
In the early 1960s, Vietnam's industrialization theory emerged amidst the dual strategic tasks of constructing socialism in the North and liberating the South At that time, the North faced a backward agricultural economy with low production levels, necessitating a shift towards socialism without first developing capitalism, all while contending with the US imperialist aggression The primary policy focused on establishing a balanced and modern socialist economy, emphasizing the development of heavy industry as the foundation, while also fostering agriculture and light industry This approach aimed to transform Vietnam from a backward agricultural nation into one characterized by modern industry and agriculture The Third Party Congress in 1960 further solidified this direction, declaring socialist industrialization as the central task for the North, with a key focus on prioritizing heavy industry development.
In 1964, the United States initiated air raids in the north, disrupting the existing economic plan and hindering advancements in heavy industry, which led to a shift in focus towards light industry and agriculture.
U.S bombing raids during 1965-1972 destroyed all six industrial cities of the north as well as most of the provincial and district towns All power plants, railways, roads, bridges, seaports and inland were severely damaged, disrupting transport routes and energy supplies, including electricity and gasoline oil As a result, the distribution of raw materials and consumables was hit hard and halted all large-scale construction works More importantly, since much of the labor force was employed in the war effort, the rest of the economy was constrained by severe labor shortages
In the post-war period (1976-1985), Vietnam faced three major economic challenges:
(1) overcome the devastating effects of war and restore the country's network of infrastructure and industrial facilities, including state-owned enterprises
(11) adopt a unified and centrally planned system for the whole country
The First Five-Year Plan (1960-65) and the Second Five-Year Plan (1976-80) aimed to transform Vietnam into a socialist economy within two decades, with industrial planning as the cornerstone of state economic management The government established input and output levels for the entire economy, recognizing the essential need for industrialization during Vietnam's transition to socialism However, while the goals of industrialization were identified, the approach was often hasty and impractical, focusing primarily on heavy industry despite limited resources and a predominantly agricultural economy recovering from years of war This resulted in industrialization being confined to state and collective sectors, neglecting other economic sectors with significant potential The transition from a centrally planned economy to a market economy from 1986 to 2006 marked a pivotal shift in Vietnam's economic strategy.
In December 1986, during the 6th National Congress of the Communist Party of Vietnam, the Party emphasized the critical need for a renewal of awareness and theoretical frameworks to effectively implement the process of industrialization.
In December 1986, the government initiated a significant reform known as Doi Moi, aimed at transitioning the economy from a centrally planned system to a 'socialist-oriented market economy' that allows for state intervention while reducing reliance on subsidies.
The concept of mnovation aims to transform industrialization strategies from a previous inward-looking model to a mixed approach that combines export-oriented and import-substituting practices This strategy has been effectively implemented in various Asian countries, emphasizing agriculture, consumer goods, and exports, rather than focusing solely on heavy industry, as seen in Vietnam's earlier industrial policies Additionally, there has been a significant shift from a centrally planned economy to a market-driven one, characterized by an open economic structure and enhanced resource mobilization within a multi-sector economy, all under state management.
Between 1986 and 1990, during the Third Five-Year Plan, Vietnam experienced significant industrial growth, with annual production increases of 8% in steel, 11% in cement, 11.1% in electricity, and 10% in zinc The discovery of oil, facilitated by joint ventures with foreign companies, led to the emergence of new industries and boosted government revenues, making oil a major contributor to Vietnam's exports Remarkably, within just a few years, Vietnam transformed from a food-deficient nation to the world's second-largest rice exporter by 1990.
Lessons for VIefnam c c1 1211211121121 1111 12111911111 11 1111121111211 19g re 44 a Industrial policy review of East Aslan counries
a Industrial policy review of East Asian countries
The industrial policy has proven to be a crucial strategy for East Asian countries, enabling them to rebuild their economies post-war and transition into newly industrialized nations Notable examples include Korea, Taiwan, and Japan, which have successfully leveraged industrial policies to achieve significant economic development.
The industrial policies of these countries have two main features: a.1 Focus on building the domestic economic base
After the war, the economy was exhausted and severely damaged The first problem in the industrialization strategy in Japan, Korea, and Taiwan was to rebuild the economy
After 1949, Taiwan initiated economic rebuilding by nationalizing Japanese-owned enterprises, focusing on key sectors like sugar refining, power generation, and oil refining The privatization of firms in the cement and paper industries facilitated a capital shift from agriculture to industrialization Concurrently, the government fostered import substitution through tariff and non-tariff barriers, while also supporting private companies with American aid for machinery and equipment imports.
In the aftermath of World War II, Japan's economy was devastated and significantly lagged behind industrialized nations in technology Initially, the United States aimed to contain Japan's economic growth; however, the rise of the Soviet Union and the spread of communism prompted a shift in U.S foreign policy The Marshall Plan was introduced to aid in Japan's reconstruction alongside Europe The early Japanese government focused on developing infrastructure and promoting key industries, including mining, coal, iron and steel, and shipbuilding, while establishing a foundational public policy framework to support economic growth.
The Japanese Government has prioritized specific areas for tax incentives, finance, and foreign investment, while also implementing strict management of import quotas for machinery and raw materials Additionally, it controls pricing in these priority sectors to ensure effective resource allocation.
The temporary easing of North-South tensions in Korea significantly impacted the economy through land reform, nationalism, and US aid In 1953, the abolition of landlords led to peasants becoming landowners, while the landlord class transitioned to commercial and industrial roles A strict land ownership management system enabled the government to implement development policies in agriculture However, neglecting rural investment in favor of industrial growth resulted in approximately 5 million rural inhabitants migrating to urban areas for work between 1949 and 1962.
To enhance national resilience against communist forces, industrial development emerged as a key priority Between 1953 and 1958, significant private economic groups, known as Chaebols, were established with strong support from the central government.
During the 50s, Korean industry witnessed strong growth in both heavy industry (chemicals, metallurgy ) and light industry (such as textiles, food processing)
The government implemented violent measures and strict social control policies to suppress opposition, ensuring concentrated institutional support This approach is exemplified by the development of Chaebols in the heavy and chemical industries, reflecting a strategic focus on inward industrial development and economic independence.
To promote the growth of import-substituting industries, the Korean government implements a dual exchange rate system that offers a fixed exchange rate for both exports and imports Additionally, it provides tax reductions on imported machinery and equipment to further support this initiative.
Summary of industrial promotion policies in Japan, Korea and Taiwan
In the first half of the 1950s, following the Korean War, industrial rationalization focused on promoting import substitution to bolster key public industries This involved prioritizing investments in machinery and equipment, regulating imports through quotas, and providing subsidies for essential sectors such as sugar, cement, chemicals, and fertilizers The Development Bank of Japan played a crucial role by offering loans, while tax exemptions were introduced to support the textile industry, alongside measures to limit the import of raw materials.
Encourage industrial development (second half of 1950s)Tariff protection for synthetic fiber products, textiles, petrochemicals, machinery, consumer electronics/selective fiscal and fiscal policy / encourage adoption of new technology
Transition period to export- oriented industrialization(second half of 1950s) Formation of key industries / development of textile industry and agricultural product processing
The development of an open economy hinges on fostering cooperation between the state and the private sector This collaboration is essential for adjusting the investment structure and ensuring effective coordination among production sectors Implementing sectoral economic development programs, particularly for the machinery and electronics industries, will provide targeted solutions to enhance growth and innovation in these critical areas.
In the 1960s, the focus shifted towards an export-oriented industry, emphasizing economic growth and attracting foreign investment This strategy encouraged industries to produce goods for export, supported by tax exemptions and government intervention Additionally, investment in applied research was prioritized to foster the development of key industries.
Export-oriented industrialization (60s) Increasing the use of foreign capital (loans and direct investment) / focusing on the private sector / setting up EPZs / tax exemptions / encouraging commercial companies
In the 1970s, long-range planning focused on utilizing market mechanisms to foster the development of knowledge-intensive and high-technology industries A strategic plan was established to advance heavy industries and export-oriented chemicals, supported by controlled financing and interest loans aimed at boosting these sectors The initiative encouraged private enterprises to expand their equipment and capabilities, reinforcing the growth of an export-oriented industrial landscape.
(70s) Formal development plan for state-owned companies in iron and steel, petrochemical, and shipbuilding/forming social investment capital fund
Combined liberalization of heavy and chemical industries.(80s) Economic liberalization/ privatization of some public sectors/ liberalization of foreign investment capital management/ financial
To foster the growth of high-tech industries, it is essential to identify strategic sectors such as electronics and machinery, offering tax exemptions and low-interest loans to stimulate investment Additionally, incentivizing the auto industry and promoting liberalization will further support this initiative Continued encouragement of small and medium-sized enterprises is crucial, alongside a shift from inward industrialization and import substitution towards outward industrialization that prioritizes timely export growth.
The success of Newly Industrialized Economies (NIES) can be attributed to their different strategies compared to Latin American economies While Latin American countries initially adopted import-substituting industrialization strategies, the prolonged reliance on this policy has led to significant drawbacks.
Brazil's experience with import-substituting industrialization highlights that a prolonged preference for import substitution can significantly undermine the effectiveness of public industrialization strategies.