The Japanese Automotive Industry: Model and Challenge for the Future? by Robert E. Cole

Author:Robert E. Cole
Language: eng
Format: epub
Publisher: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International license
Published: 2020-01-15T00:00:00+00:00

JAPANESE INDUSTRIAL POLICY: SOURCE OF STRENGTH FOR THE AUTOMOBILE INDUSTRY

Ira C. Magaziner

The Japanese government’s industrial policy has contributed to Japan’s overall industrial success and has played a formative role in the development of the Japanese automobile industry. This essay briefly describes this role and some of the general principles which govern Japanese industrial policy.

Industrial Policy in Autos

The Japanese government created the Japanese automobile industry in the 1930s when for military and for foreign exchange reasons, it passed a law forcing the market leaders, General Motors and Ford, to leave Japan. After failing to encourage the large Japanese conglomerates (zaibatsu) to enter the industry, the government provided incentives for Toyota and Nissan to do so.

After the war, the government took the initiative to revive the industry. Toyota, the largest producer, was saved from bankruptcy in 1949 by the Bank of Japan. After this, the Japanese Ministry for International Trade and Industry (MITI) and the Bank of Japan disagreed on whether to promote an automobile industry. The bank felt it would divert too many resources from other uses, whereas MITI thought it was an essential industry for economic development. The Korean War resolved the issue by creating an export market for Japanese-produced cars. Beginning in 1952, MITI developed a policy to protect and help fund the development of the industry and to help it acquire needed technology.

The government played a significant role in the industry in the 1950s and 1960s. This role consisted of three major elements: early nurturing of the industry through protection and financing; attempts to rationalize industry production; and assistance with exports and overseas marketing and distribution.

MITI passed measures in the early 1950s which prohibited repatriation of earnings from marketing facilities of foreign automobile manufacturers in Japan and limited repatriation of profits on production facilities only to cases where they contributed to the development of the domestic industry. These laws were combined with quotas on imports in the 1950s and 1960s and prohibitively high tariffs which lasted through the early 1970s. MITI also extended direct reconstruction aid to the industry in the 1950s in the form of loans from the Japan Development Bank (a state bank), through special depreciation allowances and through direct grants to a technology development association representing the major manufacturers.

The purpose of these measures was to encourage the inflow of foreign expertise through joint venture and technology licenses, to protect the industry from foreign competition in its infancy and to provide seed capital to help revive the industry. These measures were generally successful in nurturing the industry’s early development.

The second set of measures, those designed to rationalize the industry, had mixed success. These measures were aimed both at the auto parts industry as well as at the auto manufacturers themselves. For the auto parts industry, MITI initially aimed to consolidate the industry in order to create a group of large, specialized parts firms capable of competing with American suppliers. Longterm credit from the Japan Development Bank was extended to large suppliers from 1952 onward to assist their growth.

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