Summary: Testimony was given concerning two GAO reports which explored the contribution of macroeconomic policy to Japan's industrial growth and determined which Japanese Government policies supported growing industries and which assisted declining industries. From World War II through the early 1970's, the goal of the Japanese Government was to catch up with the technology of the United States and Western Europe. This was accomplished by: (1) strict foreign exchange controls; (2) commercial policies which give incentives to exports and restricted imports; and (3) controls over foreign investment and the acquisition of technology. Monetary and fiscal policies reinforced these tools by: (1) keeping interest rates low; (2) placing strict controls over domestic capital markets; (3) administering a tax system which favors savings and investment; and (4) channeling Government-controlled resources into productive investment. After these goals were achieved, Japan began placing growing emphasis on technology and social development issues. However, because of dependence on debt financing by Japanese firms, relaxed domestic regulation of financial markets, pressure on Japan to meet its international obligations, increased budget deficits, a rising class of structurally depressed industries, Government influence over key industrial sectors began to weaken. Direct subsidies to joint industry-Government research and development projects and tax credits for research and development help to provide the resources to develop new Japanese technology. In addition, the Government has assisted declining industries to help: (1) industries adjust to short-term or cyclical disruptions; (2) industries which need significant restructuring; and (3) industry segments which have lost comparative advantage move into more competitive, higher value-added production. In addition, waivers are granted to depressed industries from Japan's antimonopoly law to create antirecession cartels. In the area of employment policies, the Government has created a series of measures, designed to assist unemployed workers and to smooth structural adjustments, which concentrate on employment stabilization and retaining.
