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CHAPTER 13: INDUSTRIAL POLICY The term “Industrial policy” describes the government’s supporting of particular firms or industries to make them more competitive in the global economy. The post–World War II successes of the Japanese and South Korean economies have often been credited to an industrial policy that picks potential winners in the global marketplace and supports them through subsidies, favorable loan arrangements, tax benefits, and more direct benefits such as the use of eminent domain to provide them with land for their facilities. Industrial policy does not end in “ism,” but it is no stretch to call industrial policy “favoritism” because it favors some firms or industries over others. Post–World War II industrial policy began with Japan’s desire to catch up with the developed world through state-planned industrial development in the aftermath of World War II. The economic planning boards created by the supreme commander for the Allied Powers (SCAP) during the US military occupation of Japan planted the seeds of Japan’s industrial policy. The US occupation fundamentally changed the existing political institutions in Japan and rolled out radical INDUSTRIAL POLICY 93
labor, land, and antitrust reforms in addition to entrusting bureaucrats with expanded powers to intervene in economic affairs. 1 Political leaders in Japan were concerned that free trade and financial liberalization would prevent cartelized industries from growing and competing in the global market. In 1949, the government created the Ministry of International Trade and Industry (MITI). This agency had vast authority to regulate exports, raise tariffs, and direct public investment. This political restructuring destroyed many of the institutional norms that had traditionally tempered the collusion between business and government in Japan and set the stage for the state-driven industrialization policies that would characterize Japanese economic policy in the following decades. Japan expanded MITI’s power after becoming sovereign in 1952 and used it as an important instrument with which to conduct the nation’s ambitious industrialization policies. Today, top government officials plucked from the most prestigious universities in the country still conduct industrial policy planning in Japan and discuss it with the most powerful businessmen in their respective industries. The lax enforcement mechanisms available to economic planning agencies prompt government officials to maintain informal ties with business leaders. 2 Officials utilize the “soft” powers of their offices to form relationships with the leaders of the critical industries in the national plan. Special interest groups in Japan tend to form in response to government industrialization initiatives rather than forming out of a desire to lobby for a policy in the first place. 3 State-driven industrialization in Japan has thus led to the development of rent-seeking 94 LIBERALISM AND CRONYISM
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LIBERALISM AND CRONYISM Two Rival P
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LIBERALISM AND CRONYISM: TWO RIVAL
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CONTENTS Introduction 1 Chapter 1:
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INTRODUCTION People often see polit
Page 12 and 13:
who have the power to make decision
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CHAPTER 1: LAYING A FOUNDATION Befo
Page 16 and 17:
hijacking of the term to describe a
Page 18 and 19:
esources can be taken from some for
Page 20 and 21:
suffers from “market failure,”
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is a group of cronies in a dictator
Page 25 and 26:
ecause it permits voluntary exchang
Page 27 and 28:
people’s economic well-being. The
Page 29 and 30:
consumer demands. Examples of rent-
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the Politburo and the needs of conn
Page 33 and 34:
consider the benefits and costs of
Page 35 and 36:
upon state privilege and disproport
Page 37 and 38:
their loyalty to the socialist stat
Page 39 and 40:
cronyism from gripping every area i
Page 41 and 42:
communism are well documented and w
Page 43 and 44:
Accountability was embodied by refo
Page 45 and 46:
despite comprising only 3 percent o
Page 48 and 49:
CHAPTER 5: FASCISM Fascism, the pol
Page 50 and 51:
use the sword of the Nazi state to
Page 52 and 53: planners created a back door for in
Page 54 and 55: CHAPTER 6: CORPORATISM Corporatism
Page 56 and 57: puts men and their possibilities in
Page 58: that this form of guided capitalism
Page 61 and 62: therefore provide sufficient benefi
Page 64 and 65: CHAPTER 8: PROGRESSIVISM Progressiv
Page 66 and 67: people who argue for limited govern
Page 68: Security, Medicare, and Medicaid do
Page 71 and 72: the direct election of senators, ch
Page 73 and 74: argue for narrow individual interes
Page 75 and 76: their roots to diverse sources of i
Page 77 and 78: promises to assume a company’s de
Page 79 and 80: enefits for his former venture capi
Page 81 and 82: prices of firms within the textile
Page 83 and 84: ment the power to make decisions an
Page 85 and 86: of social justice, cronyism has an
Page 87 and 88: for women in the twentieth century,
Page 89 and 90: ecause it advocates granting these
Page 91 and 92: should pay the same as comparable b
Page 93 and 94: way, the US government replaced the
Page 95 and 96: an individual, social justice advoc
Page 98 and 99: CHAPTER 12: CRONY CAPITALISM AND DE
Page 100 and 101: subsidies, political connections di
Page 104 and 105: “cottage industries” that clust
Page 106 and 107: of complex systems. He applied this
Page 108 and 109: South Korean industrial policy gave
Page 110: The degree to which Japan’s and S
Page 113 and 114: to get involved in lobbying to prot
Page 116 and 117: CHAPTER 15: LIBERALISM VERSUS CRONY
Page 118: that power will arise with another
Page 121 and 122: with power support each other to ma
Page 123 and 124: an incentive to cooperate for the b
Page 125: environmental movement often advoca
Page 129 and 130: 6. Ludwig von Mises, Human Action,
Page 131 and 132: 12. James Heinzen, “The Art of th
Page 133 and 134: CHAPTER 5: FASCISM 1. Peter Temin,
Page 135 and 136: CHAPTER 8: PROGRESSIVISM 1. Terry L
Page 137 and 138: 16. Bruce Yandle, “Bootleggers an
Page 139 and 140: 3. Eamonn Fingleton, “Japan’s I
Page 142 and 143: FURTHER READING Acemoglu, Daron and
Page 144 and 145: ABOUT THE AUTHORS Randall G. Holcom
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