Summary: GAO reviewed the changing goals and tools of Japan's industrial policy and assessed how and why they have changed over the postwar period. In addition, GAO discussed how monetary and fiscal policies have contributed to achieving the goals of Japanese industrial policy. Macroeconomic industrial policies have helped to achieve broad economy-wide goals through their impacts on individual industries and sectors, and monetary and fiscal policies have reinforced the effectiveness of industrial policy tools by creating conditions that favored investment and growth. From World War II through the early 1970's, the Japanese Government strongly supported efforts to reconstruct the economy by rebuilding its basic industries and working to catch up with Western technology by giving export incentives and restricting imports. A key feature of Japanese industrial policy has been its flexibility in responding to changes in the domestic and international economies. By the mid-1970's, Japan was giving more recognition to concerns such as the quality of life, the environment, and other social considerations. As trade and investment laws were amended to remove controls over foreign exchange and international trade agreements, the Government lost a major source of its power to direct industry. Depressed industries and the attendant employment problems have led to new legislation and Government involvement to ease the adjustment process. As many of the postwar tools of industrial policy were lost due to legislative or structural changes, administrative guidance grew in relative significance. Today, the emphasis of industrial policy has shifted from industry-specific to technology-specific targets. The Government has attempted to assist declining industries by providing incentives to scrap excess production capacity and assist with unemployment or reemployment programs. However, budgetary constraints have limited Government financing of industrial development.
