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In the last few years, there has been considerable discussion in Washington, in the press, and among television commentators about the need for an American industrial policy. Invariably, Japan and Germany are held up as models to demonstrate that in countries where governments work in cooperation with their national industries, high-tech industrial growth far exceeds that of the U.S. Particularly with a new administration assuming responsibilities in Washington after a campaign dominated by economic issues and the need for "jobs, jobs, jobs," this topic will again come to the forefront.
First, industrial policy must be defined, since it can mean so many things to different people. Industrial policy can be defined as follows:
*A strategy agreed upon by industry, banks, and the government
* Facilitation of growth of selected industrial segments
* Facilitation of the phasing out of selected industrial segments.
Within this basic framework the question then arises, "How does this industrial policy really work?" This can be illustrated with examples from the Ministry of International Trade & Industry (MITI), which is Japan's coordinating ministry for industrial policy.
INDUSTRIAL POLICY AT WORK. Some years ago, the industrial, governmental, and financial leaders of Japan came to the realization that aluminum-producing smelter facilities were not where Japan should be spending its capital. These facilities, each of which costs between $500 million and $1 billion to build, needed to be upgraded. The Japanese leaders looked at the situation and decided that for the Japanese to devote investment capital to aluminum plants would be an inefficient prioritization of capital, and therefore wrong for Japan.
They reasoned that all the bauxite was being imported into Japan, and all of the electric power needed to turn that bauxite into aluminum was also being imported into Japan in the form of oil. In other words, more than 80% of the cost of producing aluminum was imported cost. Further, the aluminum industry does not really provide many jobs for the amount of money invested. These considerations led to the decision that the existing industry should not be modernized, but instead, should be phased out of Japan.
MITI--i.e., the leadership consensus group--persuaded banks to lend existing aluminum producers the funds with which they could buy bauxite mines in Southeast Asia, primarily in...