Economic Ideology and Japanese Industrial Policy: Developmentalism from 1931 to 1965, by Bao Gai. Cambridge: Cambridge University Press, 1997.

Richard Child Hill
Michigan State University

American economists typically inquire into markets, and sometimes into organizational hierarchies. They recognize the state as a third means to organize the economy, but confine its role to defining property rights, enforcing contracts, overseeing the general rules of competition, and (sometimes) providing collective goods; that is, to setting the minimal conditions without which markets and hierarchies could not function. More state involvement in the economy interferes with the market, and by deviating from efficiency and productivity, must ultimately give way to competitive pressures. Capitalist societies are thus bound to converge upon a market driven corporate model.

In contrast to their neo-classical brethren, Western development economists have long been interested in comparing different national paths to development. In their view, late comers to the industrialization process must forge their own development approach because they invariably face a different set of problems and possibilities than their technically more advanced predecessors. Nations wishing to overcome the penalties and realize the possibilities of late development require a strong state. The real issue, development economists often conclude, is not whether the state should or should not intervene, but how to intervene effectively.

Economic Ideology and Japanese Industrial Policy reveals how the Japanese constructed their own art of late development between the Great Depression and the end of World War II. In contrast to liberal capitalism, Japanese developmentalism addressed industrialization at the level of the nation-state. Strengthening national production was the top priority of industrial policy. The economy was viewed strategically with the aim of building an industrial structure that would maximize Japan's gains from international trade. State regulations and nonmarket governance mechanisms were designed to restrain competition so as to concentrate resources in strategic industries and maintain orderly economic growth. And the quest for short term profits was rejected to secure workers' cooperation in promoting productivity. The Japanese first institutionalized these principles between 1931-1945 under the influence of fascist ideology, but according to Bao Gai (p. 14), these tenets continued to underpin Japan's postwar industrial policy, despite changes in Japan's political institutions and national purpose.

American capitalism rests on a theoretical discourse begun by Adam Smith. There is no comparable theory of Japan's political economy. Yet Japan is the world's second largest economy, and many former socialist economies and developing countries are attracted by the Japanese model of economic development. Bao Gai truly illuminates the intellectual foundation of Japanese industrial policy and business strategy. His book deserves serious study.

Gai stresses the role of ideology and politics in the formulation of industrial policy and the institutional evolution of Japan's economic system. By ideology he means shared conceptions about the nature of society, the appropriate role of government and politics in economic life, and collective memories of past policy experiences. Such ideas form the political discourse of a nation, he argues, and a language for describing and judging policy.

Gai analyzes political debates between 1931 and 1965 among Japanese economists, statesmen, business leaders, and the public over major policy issues. He details how the Japanese perceived each situation, formulated their strategies, fought for legitimacy, clashed with each other, and confronted structural change at each turning point of economic development with industrial policy goals and implementing institutions. In Gao's analysis, for example, Japan's nonmarket governance institutions emerged as a political compromise between state officials attempting to constrain market forces through bureaucratic control, and private business figures striving to protect their own interests. Nonmarket governance structures prevailed as an industrial policy tool because they simultaneously allowed the private sector to resist direct bureaucratic control, and the state to constrain market forces to achieve policy objectives.

Gai's contributions in this study are many. He makes accessible to an English language readership, the ideas and thinkers behind Japan's industrial policy formation, 1931-1965. He expands the developmental state concept to encompass the ideology of developmentalism. And he demonstrates that developmentalism is not a fixed idea, but a phenomenon that must be understood in historical and comparative perspective.

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