Industrial Policy:

Japan's Flexible Approach

ID-82-32: Published: Jun 23, 1982. Publicly Released: Jun 23, 1982.

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In response to a congressional request, GAO analyzed Japanese industrial policy to explore the contribution of macroeconomic policy to industrial growth and to identify those industrial policies which support growing industries and those which assist declining industries to adjust.

Japan's industrial policies and the instruments it used to implement them have changed significantly since World War II in response to changes in the domestic and international economy. Japan undertook the restructuring of its economy by encouraging and facilitating investment in basic industries and rationing available funds through direct lending. Credit rationing is less effective today; this is primarily due to the financial success of the industries and the growth of alternative financing sources. Since the mid-1970's, the Government has found that it needs to commit more of its resources to assist structurally depressed industries and to ensure the quality of life. Today, Japanese Government support is geared toward developing and diffusing technologies to improve productivity and to contribute to high value added, resource conservation, pollution control, and social welfare. The emphasis of Government support has shifted from heavy industries to sophisticated technology targets. Direct subsidies to joint Government-industry research and development programs together with tax and leasing programs are widely used for technology diffusion. The Government also assists declining industries by providing incentives to scrap excess production capacity and assists workers in these industries through unemployment and reemployment programs.

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