Running head: Industrial Policy

“What Lessons can Industrial Policy in Japan and China give to Myanmar?”

Nao HamamotoInternational Relations Master’s Program

McCormack Graduate School of Policy and Global StudiesUniversity of Massachusetts, Boston

May 18, 2016

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Section 1. Abstract This paper examined previous experiences of industrial policy in Japan (1945-1982)

and China (1945-1980s) and offered lessons for Myanmar. In Myanmar, although there are

possibilities to develop its economy, there are also problems which hinge economic

development. Applying lessons from Japanese and Chinese industrial policy to Myanmar might

be able to solve these problems and develop its economy. Analyzing experiences of Japanese

and Chinese industrial policy and economic situation in Myanmar, this paper provided three

policy recommendations: the model of industrial policy to protect and promote particular

industry, the model of raising revenue for industrial policy, and the model of industrial policy

to develop professional education system and technology.

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Section 2. Table of Contents

1. Table of Contents---------------------------------------------------------------------------------p.3

2. Introduction---------------------------------------------------------------------------------------p.4

3. Background and broader context of industrial policy------------------------------------p.9

4. Theoretical/Conceptual Perspective----------------------------------------------------------p.14

5. Experiences of industrial policy---------------------------------------------------------------p.22

A. Japan-------------------------------------------------------------------------------------------p.22

B. China-------------------------------------------------------------------------------------------p.30

6. Impacts of industrial policy--------------------------------------------------------------------p.41

A. Japan-------------------------------------------------------------------------------------------p.41

B. China-------------------------------------------------------------------------------------------p.48

7. Lessons from industrial policy-----------------------------------------------------------------p.54

A. Japan-------------------------------------------------------------------------------------------p.54

B. China-------------------------------------------------------------------------------------------p.56

C. Common lessons-----------------------------------------------------------------------------p.58

8. Economic and political situation in Myanmar---------------------------------------------p.60

9. How to apply the common lessons to Myanmar Policy recommendation------------p.73

10. Conclusion-----------------------------------------------------------------------------------------p.79

11. Reference-------------------------------------------------------------------------------------------p.82

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Section 3. Introduction

Is industrial policy effective for leading economic growth? The question is one of the

most important questions in international relations because industrial policy can be a solution

for many serious problems, such as economic crisis, poverty reduction, and economic growth

in developing countries.

However, it is impossible to determine definitively whether industry policy is effective

for leading economic growth. That’s because there are a lot of other variables which have an

effect on economic growth, such as history, economic situation, industry, timings, company,

and leaders of government. However, it is possible to learn some lessons from cases of

previous industrial policy regardless of whether industrial policy is effective for leading

economic growth or not. Therefore, the most important question should be “what lessons can

experiences of industrial policy give to next generation?”

Therefore, this paper analyzes some cases of previous industrial policy in Japan

(1945-1982) and China (1945-1980s) to learn lessons for Myanmar. The reason why this paper

picked two main developed countries, such as Japan and China, to analyze their previous

industrial policies and learn lessons is that these countries are the second and third highest GDP

countries and these countries have a great history to lead high economic growth. In addition,

these two countries had different kinds of industrial policy after World War II. The

characteristic of each industrial policy may offer lessons for developing countries, such as

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Myanmar, Cambodia, Laos, and so on.

There are three reasons why this paper picked Myanmar to apply lessons from

analysis of previous industrial policy in Japan and China. First, agriculture still accounts for a

large percentage in the composition of the country’s GDP. The composition of GDP by sector

of origin in Myanmar is agriculture: 36.1%, industry: 22.3%, services: 41.6% (World Fact

Book, 2015). Therefore, there is a high possibility to develop industry and services more by

industrial policy. Second reason is that Myanmar has a great possibility to develop its economy,

such as national resources, labor, and population, so industrial policy might help Myanmar to

develop its economy (Ida, 2005, p. 218).

Finally, the most important reason is that Japan and China have “competitive

economic relations with Myanmar in the background of dynamic regional political and

economic changes in Asia” (Hong, 2014, p.1). According to Hong (2014), “both China and

Japan view Myanmar as a country of strategic importance and as a place where huge economic

profits can be made” (p.19). The history of Chinese relations with Myanmar is longer than that

of Japan. China has a geographic advantage, while Japan has great economic power which is

the world third largest. Additionally, “Japan attempts to internalize and apply "Western

standards" (such as respect for human rights, liberal democracy, and free-market based

economy) to its relations with Myanmar. The resurgence of Japanese interest and influence in

Myanmar, together with the positive roles being adopted by the US, India and the EU, may

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mitigate China's prominence in the country and help Myanmar resume the neutralist stance it

held during the Cold War” (Hong, 2014, p.19). Therefore, China and Japan have competitive

relations about Myanmar.

However, they do not have to have competitive relations and “Myanmar's foreign

relations need not constitute a zero- sum competition between China and Japan. The two

countries offer Myanmar different types of engagement” (Hong, 2014,p.19). The engagement

which both China and Japan offer can help Myanmar to develop its economy and it may be

better for Myanmar to get various suggestions about economic development from not only

China but also Japan. There are different lessons from experiences of industrial policy in China

and Japan which can help Myanmar to develop their economy. Based on these, it is really

interesting to examine how to apply lessons from experiences of industrial policy in China and

Japan to Myanmar. Therefore, Myanmar is an appropriate country for this analysis to lessons.

(i) Defining industrial policy

Defining “industrial policy” is one of the most important things for analysis of

industrial policy. Moreover, “defining industrial policy is not easy primarily because defining

industry is no longer straightforward”, and because there are many definitions of industrial

policy (Bianchi and Labory, 2010, p.303).

At first, this paper examines some different definitions of industrial policy. According

to Matsumoto (1999), industrial policy is to take a way to lead or regulate resource allocation

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for protecting and promoting particular industry (p.620). Aiginger (2007) said that “industrial

policy is a ‘set of activities which create a favorable environment for business and for adapting

production to changing domestic or international demand’” (p.300). Kagami (1991) claimed

that the definition of industrial policy is that government intervenes into private enterprise by

policy to cope with a failure of market (p.4).

According to Cho et al (1996), “industrial policy can be defined, narrowly, as a

government economic policy that aggressively influences a specific industry or group of firms

to strengthen international competitiveness or lower economic concentration” (p.62).

According to Ono (2005), industrial policy is a policy for developing countries to catch up with

developed countries by protecting and promoting particular industry. Industrial policy is also

policy for developed countries to intervene into a market directly for reinforcing productivity

for particular industry and international competitive power (p.50).

Based on these, this paper defines what industrial policy is. This paper adopted the

definition of industrial policy by Cho et al (1996). However, this paper added some elements

from the definition of industrial policy from Ono (2005) because the definition of industrial

policy needs to include what it is, why and how it is needed. Therefore, in this paper, the

definition of industrial policy is “a government economic policy that aggressively influences a

specific industry or group of firms to strengthen international competitiveness or lower

economic concentration by making, promoting, and protecting market and industry” (Cho et al,

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1996, p.62 and Ono, 2005, p.50).

(ii) Defining economic growth

Next, this paper considered what economic growth is. According to Simon (1973),

economic growth is defined as “a long-term rise in capacity to supply increasingly diverse

economic goods to its population, this growing capacity based on advancing technology and

the institutional and ideological adjustments that it demands” (p.1). This paper adopted this

definition of economic growth because it is really clear definition and it covers “capacity based

on advancing technology and the institutional and ideological adjustments that it demands” (p.

1). Besides, thinking of what industrial policy is, it is really important to decide how to

measure economic growth. This paper adopted Gross Domestic Product (GDP) as a

measurement of economic growth. According to OECD (2016), “domestic product covers

different indicators of national accounts with a focus on Gross Domestic Product (GDP). GDP

is the standard measure of the value of final goods and services produced by a country during a

period minus the value of imports.” For instance, during a business boom, consumption is

increased and companies tend to be able to increase capital investment for increasing

productivity. As a result, GDP is increased. On the other hand, when economy turns down after

the business boom, people and companies reduce consumption and GDP is decreased. The

reason why this paper adopted GDP as a measurement of economic growth is that GDP shows

how much the value of goods and services is produced in each state and it is deeply related to

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economic growth. Therefore, this paper used GDP as a measurement of economic growth.

In this paper, section II shows background and broader context of industrial policy.

Section III provides literature review. Section IV examines experiences of industrial policy in

Japan and China. After that, section V examines what the impacts of industrial policy were in

Japan and China. Section VI discusses economic and political situations in Myanmar. This

section also discusses how Myanmar is similar/ different from Japan and China from 1950s to

1980s. Section VII analyzes lessons for Myanmar from experiences of industrial policy in

Japan (1945-1982) and China (1945-1980s) and provides policy recommendations. This

section analyzes lessons for Myanmar from experiences of industrial policy in Japan and China

from 1950s to 1980s and provides policy recommendations. Section VIII concludes this

research.

Section 4. Background and broader context of industrial policy

Since World War II, “many developing countries have opted for policies aimed at

promoting new infant industries or at protecting local traditional activities from competition by

products from more advanced countries” (Aghion, 2011, p.13). These policies developing

countries tried to implement for leading economic growth and developing their economy are

now referred to as industrial policy. Industrial policy has been accepted internationally since

“The Industrial Policy of Japan” (1972) and “The Aims and Instruments of Industrial Policy: A

Comparative Study” (1975) were published (Ono, 2005, p. 38). The concept of industrial

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policy is really related to Japanese economic growth after World War II. Therefore, before that,

there was no concept of industrial policy in Britain and the United States (Kobayashi, 1984, p.

296).

Since industrial policy has been accepted internationally, a lot of states tried to

implement industrial policy of their economic purposes. In broader context, market failure is

the target of industrial policy (Rodrik, 2008, p.2). Not only developing countries but also

developed countries need to implement industrial policy because each has its own economic

problems and market failures. Market failure covers a wide range of economic problems, such

as financial crisis, trade disputes, disparity of wealth, unemployment, pollution and so on.

Market failure exists in each state in all over the world and it keeps in step with the times.

Therefore, every age it may be needed for each state to implement industrial policy and

industrial policy is one of the most important policies for economy. That’s the reason why

industrial policy was focused by government in all states.

Industrial policy should be various. There are many different cases of industrial policy

in the world because each state and region has different economic and political background and

faces different market failure. Therefore, each state and region has different history of

industrial policy. For example, “East Asian countries like Korea or Japan, rather than

advocating import substitution policies, would favor export promotion, which in turn would be

achieved partly through tariffs and nontariff barriers and partly through maintaining

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undervalued exchange rates” (Aghion, 2011, p.13). In East Asia, there were many valuable

cases of industrial policy. Japan had great experiences of industrial policy from the early 1950s

through the 1980s. From the 1960s through the 1980s, Taiwan and South Korea had

implemented industrial policy. Industrial policy in each country contributed to the development

of their economy, and the core of an East Asian industrial policy model was built. Each

government, in Japan, South Korea, and Taiwan, “promoted research and development,

through direct and indirect subsidies to R&D activities carried out by private firms, setting

research priorities and identifying particular sectors for favorable treatment, and establishing

national labs and special public-private research consortia. In some sense, these ‘innovation

policies’ would seem to have the greatest justification in terms of promoting activities in which

social returns may exceed private returns” (Noland and Pack, 2008, p. 86).

Japan’s defeat in World War II influenced Japan a lot. The productivity of Japanese

manufacturing industry was decreasing. The General Headquarters of the Allied Powers (GHQ)

implemented three big reforms. The three big reforms were the dissolution of Zaibatsu which is

that “by the 1920’s a zaibatsu contained a nucleus parent company(usually a holding

company), that was owned wholly by a family or a kinship group and formed an enterprise

group whose subsidiaries operated in a wide range of industries”, the emancipation of farming

land, and the democratization of labor (Lynn, 1989, p. 10). The three big reforms gave Japan

the framework for economic growth after World War II. During this period, from 1945 to the

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middle of 1950s, the rebuilding and independence of Japanese economy is the most important

theme. Japanese government tried to develop industries and reinforce international

competitiveness (Matsumoto, 1999, p.5,6). During next period, from the middle of 1950s to

1960s, Japanese nation's standard of living was low. Japanese government was not able to

avoid intervening into private business. Therefore, during this period, many industrial policies

were implemented by Japanese governments. There were also a wide variety of purposes for

industrial policy. As a result, many industries, including automobile industry, were developed

during this period. Since 1960s, economic situation in Japan has improved, and the Japanese

position in global economy has been increased. Japanese government tried to implement

industrial policy to increase the social satisfaction for people in Japan. As a result, Japanese

government needed a diversification of industrial policy (Matsumoto, 1999, p.6-14).

Since 1970s, Japanese nation's standard of living had been stable. During this period,

Japanese exportation had been reinforced. Although Japanese international competitiveness and

economy were able to be increased enough, new problems, like environment problem,

appeared (Nagaike, 2004, p.263). Besides, Japanese government focused on the development

of technology rather than protection of particular industry. Then, Japan could develop its

economy through these things, and now Japan has grown to top three highest GDP countries

(Matsumoto, 1999, p.6-14).

Next, this paper shows Chinese background and broader context of industrial policy.

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Since the founding of modern China in 1949, the history of Chinese economy can be divided

into two periods. First period, 1949-1978, was the ideological period of a planned economy by

Chinese government. Second period was the period of a market economy and high economic

growth by Chinese economic liberalization since 1978. Since 1953, China put the economic

plan system which was from Soviet Union in practice. The economic plan system was that

Chinese government made a plan and purpose of their economy every five years, and they tried

to develop their economy following the plan. Before 1978, China had not been related to global

market because they closed the country to foreigners. On December in 1978, Chinese

government made a basic policy for economic liberalization. They decided that a first priority

was economic development, and the decision made economic growth in China faster and

higher. This reform tried to introduce the agricultural production system, to revitalize business

management, to increase efficiency of business. Besides, Chinese government introduced the

separation between government and private enterprise, the elements of competition, and the

mechanism of market. These attempts by government were connected with high economic

growth in China.

During the period from 1981 to 1985, the rate of economic growth reached double

figures. In 1984, Chinese government tried to slow down economic growth by the policy which

economized government spending and finance. During the period from 1986 to 1990, the role

of market economy was recognized because of some strategies. However, these reforms slowed

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down because of Tiananmen Square Incident, which was the armed conflict between the

Chinese police and the demonstrators trying to democratize society or organizations in

Tiananmen Square. During the period from 1991 to 1995, socialist economy was established

by communist party in China, so Chinese government made much account of resource

allocation which utilized the mechanism of market based on Chinese macro-control policy.

Then, high growth of Chinese economy started again (Chin, 2006, p.4,5). 　 This section

provided background and broader context of industrial policy, especially in Japan and China.

Next section, this paper offers a literature review of industrial policy.

Section 5. Theoretical/Conceptual Perspective

The arguments of industrial policy can be divided into two groups of scholars.

(i) First group

First group of scholars claims that industrial policy has no positive effects on leading

economic growth. Based on analysis of previous experiences of industrial policy, this group

concluded that industrial policy did not work successfully and it had no positive effects on

leading economic growth due to one main reason. The main reason is that there were many

factors, which were related to economic growth, other than industrial policy, and there was no

evidence which can prove that industrial policy was successful in economic growth and has

positive effects on leading economic growth. It means that it is impossible to prove that

industrial policy has positive effects on leading economic growth, so this group claimed that

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industrial policy has no positive effects on leading economic growth.

Kagami (1991) also claimed that industrial policy has no effect on leading economic

growth. He said that Japanese economic growth after World War II would exist even if

industrial policy was not implemented because Japanese economic growth was supported by

many factors, such as Japanese educational system, good relationship in business, culture, and

great human resources. He claimed that there are many problems of industrial policy. First,

only industry which government chose to protect and develop can be developed, but others

cannot. Second, when government implemented industrial policy, they did not tend to think

about supporting industries. For example, if government wanted to develop their computer

industries, they needed to focus on development of technology and educational system for

engineers rather than protecting particular industry. Moreover, globalization has changed

global economy. It is impossible for each state to care about only its economy in each state

because each state needs to think of the global economy and other states economy as well as

they do for themselves. From this point of view, industrial policy, which government in each

state implements for its own economy does not have effects on leading economic growth.

Besides, he claimed that industrial policy has no effects in especially developing countries

because of many factors, such as educational system, human resources, financial system,

political situations, stability, and the role of government.

Yoshiro Miwa and J.M. Ramseyer (2002), who are advocates of Marxism, examined

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industrial policy, especially Japanese industrial policy after World War II. Based on their

analysis, they claimed that industrial policy was not effective for leading economic growth.

The argument is that industrial policy worked effectively and contributed to leading economic

growth is just social common belief, which is “Tsunen” in Japanese. They claimed that there is

no evidence to prove that industrial policy was successful in leading economic growth

effectively. Besides, they stated that Japanese ministries and government offices which

implement industrial policy did not have effective policy steps to be able to influence industry

and companies in Japan. Additionally, they showed that Japanese government was circumspect

in implementing industrial policy after World War II, so many industrial policy were not

implemented. Finally, they indicated that industrial policy did not have clear and specific

policy purpose and policy steps. Based on these, they claimed that industrial policy was not

really implemented.

(ii) Second group

Another group of scholars claims that industrial policy is effective because the cases

of industrial policy can provide “lesson” for future even if scholars cannot prove industrial

policy has positive effects on leading economic growth. This group picked up previous

experiences of industrial policy to examine how, why, and when government implemented

industrial policy and to analyze possible effects on economic growth and how it worked for

economy. Based on these analyses, this group gets lessons which can be applied to developing

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countries. This group tends to think that the lessons from previous experiences of industrial

policy are valuable because the lessons can be applied to economies in developing countries

now or in the future economy.

Bailey David, Lenihan Helena, and Singh Ajit (2009) analyzed and considered lessons

“to be learned (positive and negative) by the smaller African economies from both Irish and

East Asian industrial policy experiences” (378). They did not discuss whether industrial policy

is effective for leading economic growth. However, they analyzed previous industrial policy

experiences to learn lessons for future. They picked Ireland and East Asian countries to learn

lessons, and they picked African countries to be applied the lessons. The reason why they pick

these countries is that size of countries and economic situations are similar among these

countries. Based on their analysis, they argue that “there is need for a more ‘holistic’ approach

to economic development which inter-alia focuses on the development of domestic

entrepreneurship and indigenous firm expansion more generally as well as emphasizing the

importance of other supply side factors” (378). Additionally, they claimed that cooperation is

more important than “relying on state direction in the operation of industrial policy” by

analysis of Ireland model. “The Irish model has some benefits in that it can also be seen as

more democratic and has protected workers’ rights during the development process, in contrast

to the dirigisite East Asian model” (378). Based on these, their recommendation for the small

sized of African countries are “integration and sufficient overseas development assistance

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(ODA) for infrastructural development” (378). They also suggested that financial system in the

African economies need to be changed by intervention of government.

Hosono (2015) examined five cases of industrial policy to learn lessons. “These five

cases are: (1) the automobile industry in Thailand; (2) the transformation of the “Cerrado” in

Brazil from barren lands to a source of high-productivity agriculture; (3) the garment industry

in Bangladesh; (4) salmon farming and processing industry in Chile; (5) the upgrading of

Singapore’s industrial sector from labor to knowledge intensive” (p. 53). According to these

five case studies, there is a point in common among five case studies as one of lessons. The

point in common is that “effective institutions accomplished the role of facilitator or catalyzer

of transformation” (p.95). “First of all, many of them had been created for specific purposes

and had long-term visions and missions. Second, most such institutions regarded public-private

interaction, consultation, or coordination to be of the highest priority, as was seen in the cases

of Thai automobile industry policymakers, the Brazilian Agricultural Research Corporation,

Bangladesh garment industry policymakers, the Chile Foundation, and Singapore’s Economic

Development Board and Standard, Productivity, and Innovation Board. Third, most of these

institutions adapted flexibly to changes in the global market and phases of industrial

development” (p.95,96). These five cases are really interesting to learn lessons because these

five cases are more specific than case of industrial policy each country implemented.

Therefore, lessons learned from these five cases are also more specific.

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Larry (1990) argued that “the government’s selective industrial policies have

contributed importantly to Korea’s rapid achievement of international competitiveness in a

number of industries” (p.41). He concluded that industrial policy had been able to contribute to

the success of Korean economic growth because of “Korean’s exceptional record of realizing

export success in a wide variety of industries as well as in the strong overall performance of its

industry sector” (p.54). In addition, he tried to get lessons from Korean experiences of

industrial policy. He focused on experiences of industrial policy in Korea in the late 1970s. He

suggested five lessons. First, “the overriding objective of the intervention must be the

achievement of dynamic efficiency in the sense of attaining international competitiveness

within an explicit medium-term time horizon” (p.57). Second, “information relevant to judging

potential comparative advantage must be sought continuously from every possible source”

(p.57). Third, “detailed industry-specific strategy should be reformulated as needed to reflect

the accumulation of pertinent information and experience acquired during the course of

implementation” (p.57). Fourth, “only a small number of industries should be targeted at any

one time, so as not to spread source and specialized technical and entrepreneurial taken too

thinly” (p.57). Finally, “the government’s intervention should not overly constrain the

exploitation of comparative advantage in well-established industries” (p.57).

Noland and Pack (2008) also tried to get lessons from the experiences of industrial

policy. They examined the experiences of industrial policy in East Asian countries, especially

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Japan, Korea, and Taiwan to learn lessons for the Middle East today. They wondered if policies

like industrial policy in East Asian countries from 1950s to 1980s would lead to the same

outcomes in the Middle East. They claimed that it is difficult for the Middle East to adopt East

Asian Style industrial policies because of the international financial institutions, such as the

International Monetary Fund (IMF) and the multilateral development banks, and the global

trade regime, like the World Trade Organization (WTO). These two factors are the main

differences between East Asian countries and the Middle East today. Besides, there are two

costs for adopting East Asian Style industrial policies: “encouragement of corruption, and

discouraging the acquisition of skills in the financial system” (Noland and Pack, 2008, p.95).

Although there are the costs, there are positive lessons too. For instance, they learned lessons

like what the Middle East needs to improve for developing their economy from the comparison

between East Asian countries and the Middle East today. They claimed that there are gaps

between them, so the gaps are the one the Middle East needs to get. According to Noland and

Pack (2008), “the relative gap is the smallest with respect to macroeconomic stability, and

appears to be larger with respect to microeconomic and institutional factors and the quality and

relevance of education” (Noland and Pack, 2008, p.98).

This paper chose second group because of two reasons. First, one of the reasons is that

it is impossible to decide whether industrial policy had positive effects on leading economic

growth although previous industrial policy experiences can provide lessons for future.

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According to Pack Howard and Saggi Kamal (2006), “it is impossible to offer a single agreed

counterfactual to evaluate the success of Industrial policy targeted to individual industries” (p.

283). Masao Asada (2005) also said that it is impossible to evaluate only industrial policy

correctly. That’s because purposes, objects, and ways of industrial policy have been changing

by economic, social, and international requests. Therefore, other factors which can influence

economic growth, such as economic and political situation, government, and so on, should be

considered to evaluate industrial policy. It means that the most important thing is not

evaluation of industrial policy but when, why, and how industrial policy was implemented.

According to Bianchi and Labory (2010), “industrial development paths are indeed specific to

countries and cannot be repeated. Industrial development paths depend on the more or less

recent history of the territory, on the social structure, on economic organization and on the

effective institutional governance of the country. The combination of these factors determines a

historical situation that cannot be repeated, and must be addressed by using instruments that

may have been used in other contexts, but have to be adapted to the local context” (p. 325).

Government in a state cannot copy industrial policy in other states because situations that

industrial policy implemented were different. However, the government can get and use some

lessons from the experiences of the industrial policy to their new policy making.

Second, researching previous industrial policy should be for future economic growth

and developing industries in developing countries from the first outset. Even if experiences of

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industrial policy in the past were failure or success, it would be sure that there are significant

lessons from these experiences. The most important thing is that how to make and implement

industrial policy now, so lessons from previous industrial policy experiences are the one

scholar need to analyze. Therefore, this paper analyzed some cases of previous industrial

policy in Japan and China to learn lessons for Myanmar. This paper also considered how the

lessons can apply to a case of Myanmar.

Section 6. Experiences of industrial policy

A. Japan

Japanese industrial policy is one of the most important and successful experiences of

industrial policy. In Japan, industrial policy was mainly implemented from 1945 to 1982.

Japanese industrial policy tried to build up key industries in the short run for economic

revitalization after World War II. During 1950s, the purposes of Japanese industrial policy were

the promotion of industries of acquiring foreign exchanges and promising industries, and the

protection of industries. During 1960s, Japanese government tried to reform the industrial

structure to change protective trade to free trade. During 1970s, Japanese government had to

cope with serious environmental problems and trade disputes which were caused by increasing

international competitiveness and high growth of Japanese economy.

The post-war period from 1945 to 1982 in Japan can be divided into four parts: “(i)

1945-1950 The reconstruction period, (ii) 1951-1960 The industrial catch-up period, (iii) 1961-

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1972 The high growth-rate period, and (iv) 1973-1982 The oil-shock period” (Kagami, 1995,

p.125). This paper discussed experiences of industrial policy in Japan following these four

parts.

(i) 1945-1950 The reconstruction period

After World War II, private enterprise had limitations for economic revitalization, so

Japanese government needed to implement strong industrial policy (Nagaike, 2004, p.270).

Japanese government adopted four policy measures in this period. First policy measure was

constructing the foundation of economic revitalization. Second one was “rationing of

commodities” (Kagami, 1995, p.125).Third policy measure was “price control (including

subsidies to balance the gap between administered prices and production costs)” (Kagami,

1995, p.125). Finally, fourth policy measure was “loan rationing by the Finance Corporation

for Reconstruction” (Kagami, 1995, p.125).

The first policy measure is the most important because it can make “rationing of

commodities” increase too. In this period, “priority production method” is the most famous and

important industrial policy in Japan. According to Hori (2007), the priority production method

was implemented from 1946 to 1947. The priority production method was the method to invest

labor, resources, and money in particular two industries intensively to start up industrial base,

such as electricity, coal, iron, steel, and chemistry for economic revitalization in the short run

(Nagaike, 2004, p.263). Because of the priority production method, Japan was able to construct

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the foundation of economic revitalization (Nagaike, 2004, p. 270).

The third and fourth policy measures are also important. In 1948, J.M.Dodge who was

U.S. economic adviser made a recommendation which is called the Dodge line. “It intended to

wipe out many government controls and make more use of market mechanisms in order to

fight against inflation. A very tight budget was introduced, new loans by Reconstruction

Finance Corporation which ‘was established during the Hoover administration with the

primary objective of providing liquidity to, and restoring confidence in the banking system’

were cut and various subsidies were also abolished according to his recommendation”

(Butkiewicz, 2002). In April, 1949, a new exchange rate was set at 360 yen per US dollar

(which remained in effect until 1971), ending the multiple exchange rate system (Kagami,

1995, p.125).

This period is really important for high economic growth in Japan. In this period, Japan

was under American occupation. Japan had been under American occupation from the end of

World War II in 1945 to April 28 in 1952. After Treaty of San Francisco came into force on

April 28 in 1952, Japan recovered complete sovereignty. A lot of things, such the Constitution

of Japan, educational system, trade system and so on, were provided under American

occupation. Therefore, Japanese industrial policy in this period was influenced by American

occupation. Japanese industrial policy in this period built the basic foundation for high

economic growth. Besides, it can be said that the idea of Japanese industrial policy in this

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period is the basic idea for all industrial policies in Japan.

(ii) 1951-1960 The industrial catch-up period

In this period, Japanese government started to implement industrial policy for

rationalization of industry, and industrial policy for promoting particular industries, such as

synthetic fiber, automobile, synthetic resin, petro chemistry, machine, aircraft, and electrics had

been implemented (Nagaike, 2004, p.263). “During the last half of the 1950s, such industries

as synthetic fiber, plastics, petrochemicals, elections and general machinery were considered

“growth industries” suitable for promotion. The automotive and heavy electric industries were

highly protected by tariffs and import quotas. In addition, high-technology imports were

encouraged to catch up with advanced countries. On the other hand, coal had gradually been

replaced by petroleum” (Kagami, 1995, p.127).

The particular industries of measures for the promotion were chosen by two criterions:

income elasticity and long term productivity. Although synthetic fiber industry and

petrochemicals industry were new industries at the time, Japanese government enacted Five-

year plan for promoting synthetic fiber industry in 1953 and the measure for promoting

petrochemicals industry in 1955. As a result, preferential loan from government financial

institution, the short term repayment for equipments, reduction of taxes on imports, and the

deduction from exports were applied to synthetic fiber industry and petrochemicals industry.

Especially, the measure for promoting petrochemicals industry had three main purposes:

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Industrial Policy

maintaining raw materials for synthetic fiber and synthetic resins, promoting import

substitution for ethylene productions, and reinforcing international competitiveness for main

chemical materials (Matsumoto, 1999, p.623) Japanese government protected and promoted

other modern industries, including automobile industry, heavy electrical industry, and machine

industry. These industries were broad-based industries, so it was needed to develop technology

of company which provided parts. Therefore, the Act on Temporary Measures for machine

industry was enacted in 1956, and the Act on Temporary Measures for electronics industry

in1957. Japanese government thought that the modern industry should be protected as infant

industry. Especially, automobile industry can have broad based relationship between

investment and production and produce a lot of employments. Japanese government enacted

the Foreign Exchange Act in 1949 and the Foreign Investment Law in 1950. These laws limited

imports of some imported products and supported independence of domestic private enterprise.

In 1952, Japanese government enacted Enterprise Rationalization Promotion Law which was

like original form of Japanese industrial policy. In the field of finance, Japan Development

Bank was established as governmental financial agency in 1951 (Nagaike, 2004, p.263). In

1952, Japanese government decided to protect automobile industry. Therefore, to protect the

domestic market from foreign cars, Japanese government tried to do three things to protect

automobile industry. First, Japanese government limited investments from foreigner, erected a

tariff wall, and applied the automobile tax to foreign cars. Second, Japanese government

26

Industrial Policy

promoted technology imports from advanced countries. Third, low-interest financing system

and preferential treatment about finance were proceeded by mainly Japan Development Bank

(Matsumoto, 1999, p.625,626).

During the last period from 1945 to 1950, Japan built the basic foundation for high

economic growth under American occupation. On the other hand, Japan built the basic

foundation for industries without American occupation. It was valuable for Japanese economy

to choose and develop the particular potential industry, especially automobile industry. It was

able to contribute to high economic growth. At the present time, Japanese automobile industry

grew up and it represents not only Japan but also automobile industry in the world.

(iii) 1961-1972 The high growth-rate period / 1973-1982 The oil-shock period

From this period, Japanese economy had improved. Many industries in Japan were at

a level with advanced countries, like western countries. In 1961, the Industrial Structure

Council was established to make clear about the course of industrial structure and proceed

industrial policy for reinforcing the priority industry based on the course of industrial structure.

On the other hand, the new problem as reinforcing domestic industries which can correspond to

liberalization emerged. Japanese government announced Liberalization Plan for Trade and

Foreign Exchange in 1960, so Japanese government tried to change the protective trade to free

trade. As a result, the rate of liberalization was over 90% in 1963 (Nagaike, 2004, p.263). Japan

joined IMF (International Monetary Fund) in 1952 and GATT (General Agreement on Tariffs

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Industrial Policy

and Trade) in1955. Therefore, Japan was not able to avoid liberalization although Japanese

government had resisted liberalization strongly for a while. Finally, after the rate of

liberalization was over 90% in 1963 (Matsumoto, 1999, p. 626). According to Kagami (1995),

Ministry of International Trade and Industry’s “intervention peaked during this period,

endorsed by an unprecedented rate of growth and the confidence that Japan had succeeded in

the industrialization of heavy and chemical industries. However, as previously noted, its

influence has since gradually weakened as the private sector has expanded and come to

participate in the open international economy” (p.128). However, Japanese international

competitiveness was getting strong because of liberalization. Besides, weakening the influence

of government intervention means that the private sector can get power to become independent

from government.

There are three points about industrial policies in this period. First, “rescue packages

were provided for declining industries affected mainly by the change in economic conditions”

(Kagami, 1995,p.129). Second, “the government announced the “Basic Law for the Prevention

of Public Nuisances” in 1967 to fight against pollution and other negative effects of

industrialization”(Kagami, 1995,p.129). Third, “trade friction issues emerged as Japan

penetrated international markets”(Kagami, 1995,p.129).

However, in this period, serious environmental problems were recognized. According to

Kagami (1995), industrial policies influenced environmental problem and Japan’s participate in

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Industrial Policy

global economy.

In the industrial policy during 1970s, the important point of the intervention into

industrial organization in Japan was shifted to the promotion of development technology.

Therefore, the industrial policy during this period had two aspects: the protection and

promotion of particular industries and the intervention into corporate activity. In August, 1971,

after Nixon shock the exchange rate of the yen was 308 yen to the dollar. “President Richard

Nixon stunned the world by closing the gold window (ending the ability of foreign central

banks to convert their dollar holdings into gold) and slapping a 10% surcharge on imported

goods. These policies were designed to prevent a run on US gold reserves and reverse the

deterioration in the US balance of payments by getting other countries to revalue their

currencies, as well as head off protectionist pressures in Congress. Together with domestic

wage and price controls to reduce inflation, these surprise actions became known as the ‘Nixon

shock’” (Irwin, 2013, p.29). The first oil shock happened in 1973, so Japanese government

cannot avoid changing industrial policy. Therefore, Japanese government had to change the

position of industrial policy which tended to be protective and restricting. Japanese government

also changed the position pursing high economic growth to the new position utilizing high

economic growth. Besides, the industrial structure, which is a relationship and construction

between industries or in nation’s economy, changed from heavy chemical industry to

knowledge integrated type industries in Japan.

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Industrial Policy

The new industrial policy in 1971 regarded four industries as the priority industry:

R&D intensive industry, high-degree manufacturing industry, fashion industry, and knowledge

industry (Matsumoto, 1999, p. 628). Especially, R&D intensive industry had three advantages.

First advantage was “to avoid duplication of investments by each member company in the

consortium” (Kagami, 1995,p.130). Second one was “to share results of R&D among member”

(Kagami, 1995,p.130). Finally, third advantage was “to make product markets competitive”

(Kagami, 1995,p.130).

During 1960s, Japan can accept liberalization and make international competitiveness

in Japan stronger. Although the influence of industrial policy was getting weak, Japanese

economy can be developed by the private enterprise. Therefore, the purpose of industrial policy

changed from focusing domestic market to supporting for industries and private enterprise with

potential to move in on the global market. Additionally, during 1970s, the industrial policy

focused on development of technology. That can support high economic growth and the high

level of living. It can be said that development of technology has made Japan what she is.

B. China

The Chinese government implemented industrial policy from 1945 to 1980s. The period

can be divided into 4 stages. First stage was the restoration period of productivity (from 1949

to 1978). Second stage was the adjustment period of industrial structure (from 1978 to 1985).

Finally, third stage was the transition period of systematization of industrial policy (from 1986

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Industrial Policy

to 1988). (Chin, 2006, p.6,7). In this paper, the transition period of systematization of industrial

policy includes 1989/ Tiananmen Square.

(i) The restoration period of productivity (from 1949 to 1978)

In this period, powerful, centralized planned economic system was undertaken. The

Chinese central government had the absolute power to make a decision about a distribution of

investment fund, labor, and material (Chin, 2006, p.6). Therefore, the intention of policy by the

Chinese central government was reflected in the allocation of investment. There are two main

characteristic of Chinese industrial policy in this period: priority policy for heavy industry and

planned economy, and location of industry (Kuchiki, 2000, p.17).

a. The priority policy for heavy industry and planned economy

China created planned economic system and adopted priority policy for heavy industry

during the First five year plan from 1953 to 1957. That was because China followed the model

of the socialism in one country from the Soviet Union and the Soviet Union assisted China in

planned policy, technology, and funds (Kuchiki, 2000, p.17). As a result, from 1953 to 1965,

the Chinese central government focused on development of heavy industry, such as steel, coal,

electricity, and machine to create a foundation of industrialization (Chin, 2006, p.6). The First

five year plan was the most successful plan of those implemented before Chinese economic

reform in 1978. However, problems of priority policy for heavy industry showed up. One of

the problems was that priority policy for heavy industry was overdone, so it had a bad

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Industrial Policy

influence on economy, like a decline in consumption. From 1995, the Chinese central

government tried to review priority policy for heavy industry. Mao Zedong also claimed that

priority policy for heavy industry had problems. He suggested three points. First, agricultures

and light industry were more important than heavy industry, so agricultures and light industry

should be more focused. Second, it was better to exploit existing industrial infrastructure in

coastal area. Third, military industry should be restrained. However, these suggestions were

never reflected in policy making (Kuchiki, 2000, p.17-19). Besides, Mao Zedong advocated

Great Leap Forward which “was China’s alternative to Soviet-style development, an attempt to

leap ahead in production by reorganizing the peasantry into large-scale communes and

mobilizing society to bring about technological revolution in agriculture” (Peng, 1987, p.639).

It increased the output of production of crude steel to 107 million tons in 1958. As a result,

after 1958, the rate of investment for mining and manufacturing industry as a whole was

increasing (Kuchiki, 2000, p.17-19).

b. The location of industry

Before 1978, another important characteristic of Chinese industrial policy was location

of industry. Considering national defense influenced in the location of industry. When China

was established, location of industry was in coastal area, so the rate of production of crude steel

in coastal area was 68%. However, during the First five year plan from 1953 to 1957, the rate

of production of crude steel in coastal area was 37%. The location of industry changed from

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Industrial Policy

coastal area to inland. There were three reasons why the location of industry changed coastal

area to inland location. First, the location of basic materials industry had to be in the producing

center of mineral resources. Second, the Chinese central government tried to narrow the gap

between coastal area and inland area. Third, the reason was the national defense. While the

First five year plan had been making, the Korean War was going and the Constitutional

Nationalist Party in Taiwan was planning countermove to China. Therefore, the Chinese central

government avoided locating industrial area in coastal area (Kuchiki, 2000, p.23,24) The first

and second reason should have been more important than the third reason. However, the third

reason was the most important for Chinese government. The national defense should not be

related to industrial policy because it should be connected with politics. This characteristic of

Chinese industrial policy in this period showed that industrial policy in China was influenced

by political factor rather than economic factor.

From 1964 to 1971, industrial policies which consider national defense were the most

important and pursed further. At the time, China faced the problem of deterioration of

relationships with the United States and the Soviet Union. One of representative industrial

policies from 1964 to 1971 was called Third Front Construction which the Chinese central

government tried to establish the base for heavy industry and military industry in inland for

national defense. Based on Third Front Construction, the Chinese central government tried to

promote energy industry, basic materials industry, machine industry, and military industry. As a

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Industrial Policy

result, the Chinese central government needed to put a lot of investment fund into this

industrial policy, and light industry and coastal area were declining (Kuchiki, 2000, p.25).

Because of Third Front Construction, employment and wages were increased and basic

commodities, such as food and cloth, were in short supply. In 1972, the Chinese central

government started exploring for new industrial policy. There were two measures the Chinese

central government came up with. One of the measures was arrangement of Third Front

Construction. Another one was to import petrochemical plants, such as chemical fertilizer,

synthetic fiber, ethylene, from the United States and Japan. From 1976 to 1978, priority policy

for heavy industry was reactivated. Based on the plan which was made until February in 1978,

implementation of 120 projects, including electricity, coal, steel, and so on, was planned. This

plan was all-inclusive, but this plan produced the expansion of budget deficit and trade deficit.

Therefore, this plan was reviewed in the end of 1978. Although there was the problem of

priority policy for heavy industry which commodity was in short supply, it was not changed

until the end of 1970s. One of the reasons of that was political situation in China. There was no

leadership which can change industrial policy in the Chinese central government (Kuchiki,

2000, p.27).

In this period, political factor influenced industrial policy a lot in China. Not only

priority policy for heavy industry but also Third Front Construction was influenced by political

factor. Especially, national defense had a big effect on industrial policy. Although industrial

34

Industrial Policy

policy should be for economy, Chinese government implemented industrial policy for not only

economy but also national defense. Therefore, industrial policy in this period did not work well

for developing their economy on the whole because light industry and coastal area were

declining and basic commodities were in short supply.

However, these industrial policies, such as priority policy for heavy industry and Third

Front Construction, had also positive effects. For example, priority policy for heavy industry

can develop heavy industry in China. Usually, developing heavy industry is really important

for developing the economic foundation. Besides, employment and wages were increased

because of Third Front Construction.

(ii) The adjustment period of industrial structure (from 1978 to 1985) and the

transition period of systematization of industrial policy (from 1986 to the end of

1980s)

According to Eun and Lee (2002), “since the mid 1980s, the Chinese government has

paid special attention to industrial policy, which had often been regarded as the secret of

Japanese and East Asian economic growth.” (p.6). In this period, there were four main points

of industrial policy in China: the priority policy for light industry, the policy considering

energy and transportation are important, dealing with overlapping investment, and industrial

policy in 1989.

a. The priority policy for light industry

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Industrial Policy

The third Plenary Session of the 11th Central Committee of the Communist Party of

China was known as the start of Chinese economic reform. It expanded the outline of priority

policy for heavy industry and the priority policy for heavy industry was greatly decreased.

According to Kuchiki (2000), the procurement prices of food increased by 20%. The bonus

payment was adopted in cities, and wages was increased in 1979. Since 1978, real wages had

increased by more than 6% per year for three years (p.28). Increasing the procurement prices of

food and the real wages changed the basic mechanism of priority policy for heavy industry.

This mechanism, which was created in 1950s, was that the control of the procurement prices

and the real wages helped company to get much benefit, and the Chinese central government

can siphon off the benefit and save it to invest in heavy industry. The control of the

procurement prices and the real wages was able to reduce savings which the Chinese central

government needed to collect from people and increase the national disposable income. If the

national disposable income can increase, the demand of commodity also can be increased.

Therefore, the Chinese central government came up with the industrial policy which gave light

industry and textile industry priority in planned distribution of investment, foreign exchanges,

and raw fuel. It was said that there were two merits of implementing the industrial policy. One

of them was that development of consumer industry can contribute to the unemployment

problem in cities. Another merit was that increasing a supply of commodity can increase the

nation’s standard living (Kuchiki, 2000, p.28). In the last period, light industry was declining,

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Industrial Policy

basic commodities were in short supply, and the nation’s standard living in China was reduced

because of failures of the industrial policies at the time. However, the priority policy for light

industry in this period was able to improve these problems. It was valuable for Chinese

economy to implement the priority policy for light industry.

Although the industrial policy contributed to developing of consumer industry and

increasing wages, there were two factors to help the industrial policy success. One of them was

that the Chinese central government adopted partial market mechanism. The market

mechanism is “the workings or processes of the free market, e.g. the setting of prices by the

forces of supply and demand, esp. when viewed as sufficient in themselves to regulate the

economy without the need for state intervention” (Oxford English Dictionary, 2000). Another

one was that investment rate did not decrease although the Chinese central government reduced

government saving (Kuchiki, 2000, p.28).

b. The policy considering energy and transportation are important

Since 1982, Chinese government implemented the policy to selectively distribute money

into transportation infrastructure and energy industry. However, the revenue financial source

for the policy was the difficult problem because government savings that the Chinese

government could use directly had been decreasing quickly. Therefore, the Chinese

government came up with the national surcharge for construction of energy and transportation

industry that the Chinese government collected tax from local government, state-owned

37

Industrial Policy

enterprise, and so on, and used the tax for construction of energy and transportation industry.

According to Kuchiki (2000), from 1983 to 1985, the Chinese government intended to increase

investment for construction of energy and transportation industry by 12 billion yuan, 12 billion

yuan of them from the national surcharge for construction of energy and transportation

industry, 8 billion yuan from bank loan and national finance. In fact, 36.1 billion yuan was

collected by the national surcharge for construction of energy and transportation industry, and a

total of 180.7 billion yuan had been collected by it until 1995 (p.31-33). Therefore, it can say

that the national surcharge for construction of energy and transportation industry was effective

in fundraising investment of construction of energy and transportation industry. After that, the

policy to collect money by national surcharge was used frequently. For instance, the national

surcharge was used for railway fright transportation, the construction of roads, and so on.

However, many institutions, including local government, used the national surcharge for

many different things, so that imposed a burden on people and companies. As a result, from

1994, the Chinese government started to improve the situation, like changing fundraising from

the national surcharge to from tax (Kuchiki, 2000, p.31-33).

c. Dealing with overlapping investment

After 1980s, market mechanisms worked partially, and the number of companies

which entered the market increased. The Chinese government regarded that as overlapping

investment, and they thought that consolidation of companies was needed. Besides, the

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Industrial Policy

Chinese government thought that it was needed to segregate state-owned enterprise from

private enterprises because state-owned enterprises should not compete in getting materials and

markets (Kuchiki, 2000, p.34).

However, it is a matter of course in market economy that many companies try to enter

market of industries which have a possibility to increase demand. As a result, if competition

happened in market and inefficient companies go bankrupt, it is better because it means that

efficiency of industries is increased. The Chinese government thought that this phenomenon

was negative because of the view of a planned economy (Kuchiki, 2000, p.34).

The policy to deal with overlapping investment implemented in each industry. There

was one of the examples of it. A lot of production line of color television was innovated from

Japan, so the Chinese government issued the circular that the innovation of the production line

cannot be permitted without permission from the Chinese government. The innovation of the

production line virtually was prohibited (Kuchiki, 2000, p.34).

d. Industrial policy in 1989

Industrial policy in 1989 was so important in China because of two reasons. One of

them was that the industrial policy can be the compilation of industrial policy during 1980s.

Another reason was that it was first time in China to implement the industrial policy which was

named “industrial policy.” The industrial policy in 1989 tried to solve five problems of the

industrial structure. First, one of the problems was that there is a lack of productivity of basic

39

Industrial Policy

industries, such as agriculture industry, energy industry, transportation industry, and materials

industry. Second, there is a lack of high level machining ability. Third, each area cannot display

their superiority because of industrial location. Finally, fourth problem was that the level of

market concentration was so low, and cooperative relationship for productivity between

companies was not organized well because industrial structure was dispersive. To solve these

problems, the industrial policy in 1989 pursued especially three things. First, protective

industries and specified industries were put further up on a list in each department of

government, such as productivity, investment, improvement of technology, and import and

export. Second, each department of government and local government proceeded distribution

of investments and investments of foreign capital following the list. Third, bank tried to do

withdrawal of capital from specified industries, and bank financed protective industries.

Finally, the Chinese central government tried to give favorable treatment to protective

industries in tax, transportation, and policy for price (Kuchiki, 2000, p.36).

In this period, the industrial policies were more effective than the industrial policies in

the last period because of two reasons. First reason is that Chinese government tended to use

what they learned from the failures of industrial policies in the last period for the industrial

policy making in this period. Second reason is that the priority policy for light industry, the

policy considering energy and transportation are important, and the industrial policy in 1989

were effective on building economic foundation which can be a base of high economic growth.

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Industrial Policy

Besides, how to fundraise investment is one of the most important problems in developing

countries. The way of fundraising investment in China like the national surcharge for

construction of energy and transportation industry can offer lessons for developing countries.

Section 7. Impacts of industrial policy

A. Japan

Industrial policy in Japan influenced Japanese economy positively and negatively.

According to Nagaike (2004), during 1945-1959, one of the most important effects of

industrial policy was the construction of foundation for economic revitalization. Based on that,

it was easy for Japan to develop manufacturing industries. After World War II, it was really

difficult for private enterprises to develop the foundation for revitalizing economy in Japan.

Therefore, governmental interventions into private enterprise, like implementing industrial

policy, were needed. It can be said that industrial policy contributed to the construction of

foundation for economic revitalization. It means that industrial policy can lead high economic

growth. Besides, there were many successful cases of R&D projects which were preceded by

industrial policy. It was related to development of technology in Japan. The high technology

was so helpful for development of Japanese economy (p.270).

Industrial policy in Japan influenced in composition of GDP. The composition of GDP

by industries in Japan is showed in Figure1 (Japanese National Economic Counting, 2014).

Additionally, the composition of GDP by manufacturing, agriculture forestry and fishers, and

service industry in the high growth rate period and the oil-shock period is showed in Table

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Industrial Policy

1(Japanese National Economic Counting, 2014). As shown in the Figure1, the rate of

manufacturing industry was 25.9% in 1970, 26.0% in 1980, and 28.2% in 1990 (Japanese

National Economic Counting, 2014). The rate of manufacturing industry had increased, and the

rate accounted for a large percentage. It can be said that manufacturing industry was able to be

the most popular industry in Japan because Japanese government implemented industrial

policy to protect and promote manufacturing. Besides, as indicated in the Figure1, the rate of

service industry was 14.5% in 1970, 15.4% in 1983, and 17.1% in 1998. The rate of service

industry had increased especially from 1980s to 1998 (Japanese National Economic Counting,

2014). The service industry was the one Japanese government promoted after manufacturing

by industrial policy, including R&D projects. Based on the cases of manufacturing industry and

service industry, it can say that the industries, which the Japanese government focused on and

industrial policy implemented for, were developed. The industries which the Japanese

government focused on should be the one Japan needed for economic development. The

industries were developed on the Japanese government’s purpose, so it can say that industrial

policy worked positively for economic development. Therefore, it can say that industrial policy

is effective for developing industries based on the cases of manufacturing industry and service

industry.

42

Industrial Policy

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982Agricultural forestry

and fishers5.1 4.7 4.9 4.8 4.8 4.6 4.2 3.9 3.7 3.6 3.3 3.2 3.3

Manufacturing 25.9 26.0 26.2 27.3 26.9 24.8 25.9 25.6 25.0 25.8 26.0 26.0 26.1

Service industry 14.5 14.6 14.8 14.2 14.2 13.7 13.2 13.6 13.3 14.0 14.3 14.6 14.9

Source: Japanese National Economic Counting, 2014

1961-1972The high growth rate

period1973-1982 The oil-shock period

(%)

Table 1. The Composition of GDP in The high growth rate period/The oil-shock period

According to Kagami (1995), there are four positive points from Japanese experiences

of industrial policy. First, it is interesting that Ministry of International Trade and Industry

“protected infant industries during their initial growth periods (forward protection) but also had

to protect them after facing subsequent difficulties (backward protection). Also, expenditures

for backward protection seems greater than those for forward protection” (p.131). Second,

“infant industry protection was also applied in the case of knowledge intensive industries (to

compete with foreign monopolies) since the private return sometimes diverges from the social

return due to externalities and the special characteristics of the industry” (p.131). Third, “the

government determined methods for the transmission and feedback of information. Council

related activities helped private sectors eliminate information gaps in technology, markets,

policies, future prospects and so on. Council thus played a vital role in the exchange of

information much like a switchboard connecting all branches of institutions” (p.131). Fourth,

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Industrial Policy

“industrial policy is always influenced by the changing would. Policy responses for

externalities such as pollution and environmental destruction are one example and trade

frictions are another” (p.131).

Additionally, when Nixon Shock and Oil Shock happened, Japanese economy was

thrown into crisis. However, at the time, industrial policy was able to find a way out of a

difficult situation (Nagaike, 2004, p.270). Japanese GDP growth is shows in Figure 2 (World

Development Indicators, 2016). As indicated in the Figure2, Japanese GDP growth was -1% in

1970 and -1.2% in 1974 because of Nixon Shock and Oil Shock (World Development

Indicators, 2016). However, Japanese GDP growth was recovered in 1972, 1973, and after

1975 because of industrial policy. During 1960s, Japanese GDP growth was the average of

Japanese GDP was 10.4%, and it is so high. Besides, industrial policy had positive effects on

the GDP at market prices (current US $) in Japan. The GDP at market prices (current US $) in

Japan was $44.3 billion in 1960, $209.07 billion in 1970, $1087 billion in 1980, $3103.7

billion in 1990, $4731.2 billion in 2000, and $4601.5 billion in 2014 (World Development

Indicators, 2016). The GDP at market prices (current US $) in Japan has increased, especially

from 1970s to 1990s.

On the other hand, at the same time as high economic growth, environmental

problems were getting serious. Especially, industrial pollutions, such as Yokkaichi asthma,

Minamata disease, and Ouch-ouch disease, were so serious problems in Japan. Besides, Oil

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Industrial Policy

Shock made people consider the necessity of saving energy and resources. Because of these

environmental problems, Japanese government established the standard for environmental

problems which was the severest in the world. As a result, Japan can improve these serious

problems, and Japanese technology for environment is among the highest in the world

(Nagaike, 2004, p.270). Industrial policy led to not only positive effects, like high economic

growth, but also negative effects, like environmental problems. Although there was negative

effects of industrial policy, such as environmental problems, Japan can learned how to improve

it and how to deal with the problems, like establishing the standard for it. That can be one of

positive effects. That’s because improving problems which show up with economic

development is really important. It is needed to solve many problems showed up in the 21st

century, such as energy problem, declining birth date, and so on.

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Industrial Policy

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

Figure 1. Composition of GDP by industry in Japan 1970-1998

　 10) 　 Service industry

　 9) 　 Transportation and Communica-tions

　 8) 　 Real estate

　 7) 　 Insurance and Financial

　 6) 　 Wholesale and Retail trade

　 5) 　 Electricity, gas, heat supply and wa-ter

　 4) 　 Building

　 3) 　 Manufacturing

　 2) 　 Mining

　 1) 　 Agricultural forestry and fishers

Source: Japanese National Economic Counting, 2014 46

Industrial Policy

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

-10

-5

0

5

10

15Figure2.Japan GDP growth (annual %) 1960-2014

Japan

Source: World Development Indicators

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

$0

$1,000,000,000,000

$2,000,000,000,000

$3,000,000,000,000

$4,000,000,000,000

$5,000,000,000,000

$6,000,000,000,000

$7,000,000,000,000

Figure. 3 GDP at market prices (current US$) in Japan

Japan

47

Industrial Policy

Source: World Development Indicators, 2016

B. China

All in all industrial policy in China was effective in economic growth. Although some

industrial policies did not work well, the Chinese government tried to improve the industrial

policies whenever they found problems of these policies. The improvement was really effective

in economic growth because they can learn lessons for next policy from the improvement. For

example, the priority policy for heavy industry influenced Chinese economy negatively. Based

on the failure of the priority policy for heavy industry, the Chinese government tried to review

the policy and make new industrial policy which focused on light industries. There were three

more failures of industrial policies: Third Front Construction, the policy dealing with

overlapping investment, and the industrial policy in 1989.

a. Third Front Construction

This policy was implemented for national defense, so this policy was wasteful from

the economic view because of two reasons. First, location of factory was chosen by reason of

national defense, so the Chinese central government ignored economic efficacy to choose the

location. Second reason was that a lack of investment and a deterioration of equipment

happened in coastal area. On the other hand, there was also positive effect. The positive effect

was that the policy persevered in the gap between inland and coastal area by development of

infrastructure in inland (Kuchiki, 2000, p.26).

b. The policy dealing with overlapping investment

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Industrial Policy

The policy dealing with overlapping investment was not effective on developing

Chinese economy. The policy impeded competition among companies in the market. As a

result, the emergence of companies which had competitiveness in global market was declined.

Actually, overlapping investment is usually valuable in economy because it can increase

industrial efficacy (Kuchiki, 2000, p.35,36).

c. The industrial policy in 1989

The industrial policy was effective on first problem which there is a lack of

productivity of basic industries, such as agriculture industry, energy industry, transportation

industry, and materials industry. Because of the industrial policy, the productivity of basic

industries had increased. It was unclear if the industrial policy was effective on two problems

because it was difficult to examine the impacts on these problems. One of the problems was

that there is a lack of high level machining ability. Another problem was that each area cannot

display their superiority because of industrial location. Moreover, the industrial policy was not

effective on fourth problem. That’s because the level of market concentration was not able to

improve enough (Kuchiki, 2000, p.37.38).

Although there were some failure cases of industrial policy, they always improve their

policy. Therefore, industrial policy in China had positive effect on economic growth and the

GDP at market prices. Chinese economic growth rate has increased. Chinese GDP growth

shows in Fugure4 (World Development Indicators, 2016). The Chinese GDP growth was

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16.9% in 1969 and 19.4% in 1970 (World Development Indicators, 2016). After 1970, the

Chinese GDP growth had been maintaining positive growth until 2014 except in 1976. Besides,

the GDP at market prices (current US $) in China shows in Figure 5 (World Development

Indicators, 2016). The GDP at market prices (current US $) in China was $59.2 billion in 1960,

$91.5 billion in 1970, $189.6 billion in 1980, $359 billion in 1990, $1205 billion in 2000, and

$10354 billion in 2014 (World Development Indicators, 2016). The GDP at market prices

(current US $) in China has increased from 1960 to present.

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

-30-25-20-15-10

-505

1015202530

Figure 4. Chinese GDP growth (annual %) 1960-2014

China

Source: World Development Indicators

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1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

2012

$0

$2,000,000,000,000

$4,000,000,000,000

$6,000,000,000,000

$8,000,000,000,000

$10,000,000,000,000

$12,000,000,000,000

Figure5. GDP at market prices (current US$) in China

China

Source: World Development Indicators, 2016

Besides, according to Chin (2006), the industrial policy in China was effective on the

industrial structure in China. Since 1978, the industrial structure in China changed with

economic growth (p.9). Additionally, the industrial policy influenced in the composition of

GDP. The composition of GDP by sector in China shows in Figure 6 (China Statistics Press,

2016). According to China Statistics Press (2014), the composition of GDP of agriculture was

1027.5 million yuan in 1978, 1371.6 million yuan in 1980, 5062 million yuan in 1990, 14944

million yuan in 2000, 40533.6 million yuan in 2010, and 56957 million yuan in 2013. The

composition of GDP of agriculture had decreased from 28.1% in 1978 to 14.6% in 2003.

According to China Statistics Press (2014), the composition of GDP of industries was 1745.2

million yuan in 1978, 2192 million yuan in 1980, 7717.4 million yuan in 1990, 45555.9 million

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yuan in 2000, 187383.2 million yuan in 2010, and 249684.4 million yuan in 2013.The

composition of GDP of industries had increased from 48.2% in 1978 to 52.2% in 2003.

According to China Statistics Press (2014), the composition of GDP of services was 872.5

million yuan in 1978, 982 million yuan in 1980, 5888.4 million yuan in 1990, 38714 million

yuan in 2000, 173596 million yuan in 2010, and 262203.8 million yuan in 2013.The

composition of GDP of services had increased from 23.7% in 1978 to 33.2% in 2003. The

industrial policy also influenced in employment structure.

The number of employees had increased from 499 million people in 1985 to 737

million people in 2002. Additionally, the rate of employees of agriculture had decreased from

62.42% in 1985 to 50% in 2002. The rate of employees of industries had increased from 48.2%

in 1978 to 52.2% in 2003. The rate of employees of services had increased from 23.7% in 1978

to 33.2% in 2002. As a result, a lot of employee moved from agriculture to services. It means

that the dual economy structure in China changed to modern economy structure, so Chinese

had been industrializing. Besides, this result can show that the three situations, such as the

foundation of agriculture was weak, the unbalanced development of industries, and low level

of service industry, were improved by the industrial policy which the Chinese central

government had implemented for almost 25 years (Chin, 2006, p.9).

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197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013

0 50000 100000 150000 200000 250000 300000

Fugire 6. Composition of GDP by sector in China 1978-2012

services

industries

agriculture

(1000 million yuan/ 1yuan = almost $ 1500 million)

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Source: China Statistics Press, 2014

Section 8. Lessons from industrial policy

A. Japan

There are three lessons from Japanese experiences of industrial policy.

First, in developmental initial stage of economy or restoration period after war, it is

effective for developing industries and economic growth to proceed industrial policy by

government for reinforcement of competitiveness of particular policy. Based on the analysis of

developmental stages and competitiveness for each industry, it is needed to classify industry

under two types: protective industry which should take protective policy and other industry

which was exposed to market principle and competition principle. After that, government can

know which industry they need to protect and promote and they can plan and implement

industrial policy for the industry intensively (Nagaike, 2004, p.270). The way to protect and

promote industries is the most important characteristic of Japanese industrial policy. The

Japanese government was able to use the way to protect and promote industries which had a

possibility of economic growth at the ideal time. Choosing industrial policy and time is really

important as well as what industrial policy was implemented. However, according to Nagaike

(2004), protecting and promoting the particular industry should be temporary and it is

important to put the particular industry into competitive market after the certain period which is

implementing industrial policy to protect and promote the particular industry. That’s because

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the basic thought of industrial policy is to help industry and company to perform autonomous

management (p.270).

Second, it is effective on economic growth to focus on development of technology

after building the construction of foundation for economic revitalization. The Japanese

government shifted the purpose of industrial policy from building the construction of

foundation for economic revitalization to developing technology. The shift is one of the most

important things for high economic growth in Japan because the development of technology

can support and promote high economic growth. To promote the development of technology, it

was needed to advance educational institutions and research institutions. Advancing

educational institutions and research institutions had a positive effect on human resources.

That’s because advancing educational institutions and research institutions can give people

high skills and provide high quality human resources. Based on these, industrial policy which

focused on the development of technology was necessary for high economic growth in Japan.

It is valuable for developing countries to implement the industrial policy which focused on the

development of technology like Japan did.

Third, the longer industrial policy is implemented, the weaker international

competitiveness will be. One of problems of Japanese industrial policy was to lose timing of

stopping industrial policy because Japanese government protected the particular industries too

long (Nagaike, 2004, p.270). Although industrial policy can help the particular industries to

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develop, the particular industry cannot rely on industrial policy forever. After a certain period,

the particular industry needed to develop individually without industrial policy. Besides, if the

government protected the particular industry too long, it is possible that other industries cannot

be developed because the government focused on the particular industry to develop. According

to Nagaike (2004), there are two important things governments should do for developing

economy and industries. One of the most important thing governments should do for

developing economy and industries is not to intervene into private enterprise too much but to

create the environment which private enterprise can do corporate activities freely by

implementing industrial policy moderately. Another one is to equip infrastructure for industries

because it is really difficult to do that by only private enterprise (p.270)

B. China

There are two important lessons from Chinese experiences of industrial policy in

general. First, industrial policy should be the policy which can make the best use of advantages

each state has. The Chinese government tried to implement industrial policies which can make

the best use of advantages China had. It can be learned from the policy considering energy and

transportation are important. In the policy considering energy and transportation, the Chinese

government tried to use their advantage: population. In 1982, the Chinese government decided

to focus on development of energy industry and transportation infrastructure. However, the

Chinese government did not have enough savings to use for development of energy industry

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and transportation infrastructure at the time. Therefore, the Chinese government introduced the

national surcharge for construction of energy and transportation industry which was that the

Chinese government collected tax from people, local government, state-owned enterprise, and

so on, and used the tax for construction of energy and transportation industry. As a result, the

Chinese government was successful in increasing investment for construction of energy and

transportation industry. In addition, 36.1 billion yuan was collected by the national surcharge

for construction of energy and transportation industry, and a total of 180.7 billion yuan had

been collected by it until 1995 from 1983 (Kuchiki, 2000, p.31-33).The policy was really

effective on increasing investment for industries and infrastructures the Chinese government

focused on. It can say that the policy can contribute to economic development. Therefore, it is

really effective on economic development to implement industrial policies which can make the

best use of advantages each state has.

Second, Chinese central government tried to implement industrial policy for

development of regional industry. Chinese industrial policy covered wide range of industry,

such as heavy industry, light industry, industrial infrastructures, finance, and so on. Especially,

it is really important point that Chinese central government tried to implement industrial policy

for development of regional industry. For example, one of purposes of Third Front

Construction is to persevere in the gap between inland and coastal area by development of

infrastructure in inland. It is really important for China to persevere in the gap between inland

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and coastal area because China has big country and it is easy for China to have the gap.

According to Hashida (1997), implementing the industrial policy to develop regional industry

is one of the most important differences between Chinese industrial policy and Japanese

industrial policy. This lesson can apply to states which has big country. Besides, even if state

has small country, regional disparities are really serious problems. Therefore, this lesson is

really important.

C. Common Lessons

There are two lessons from experiences of industrial policy in both Japan and China in

common. First, both the Japanese government and the Chinese government implemented

industrial policies for the construction of foundation for economic development and promotion

of basic industries at first. To develop economy in developing countries, it is really important to

build the construction of foundation for economic development and promote basic industry

because of two reasons. First, developing countries can start developing their economy since

they have these two elements, the construction of foundation for economic development and

promotion of basic industries. Second, industries in developing countries cannot be developed

without these two elements. Both Japan and China was able to be successful in building the

construction of foundation for economic development and promoting basic industries by

implementation of industrial policies. Besides, based on these two elements, Japan and China

grew their economy and kept high economic growth. Therefore, the importance of the

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construction of foundation for economic development and promotion of basic industries can be

learned from experiences of industrial policy in both Japan and China in common.

Second, the most important lesson from experiences of industrial policy in both Japan

and China in common is to implement industrial policy for the right purpose and at ideal time

considering background each state has, such as culture, political and economic background,

advantage, location, and so on. It means that these questions, what right purpose is, how to

implement industrial policy and when ideal time is, are so important. These are really

important because there is no industrial policy which can work well in every state. Therefore,

the government in each state needs to make and implement industrial policy considering its

own background. Japanese industrial policy and Chinese industrial policy were different.

However, each industrial policy was successful because both of them fit the background they

had. For instance, Japanese industrial policy fit Japanese culture. Chinese industrial policy fit

political background in China. Therefore, it is needed that government in each state

understands and analyzes the background in each state well and makes industrial policy which

can fit the background. Besides, to implement industrial policy successfully, it is needed to

implement industrial policy on right purpose at ideal time. The government needs to analyze

and consider what right purpose is and when ideal time is. It is the most difficult, but it is also

the most important. Although answers for these questions, what right purpose is, how to

implement industrial policy and when ideal time is, cannot be replicated from experiences of

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industrial policy in advanced countries, how important these are and how to analyze the

situations can be learned from the experiences.

Section 9. Economic and political situation in Myanmar

GDP at market prices (current US $) in Myanmar is shown in Figure 6 (World

Economic Outlook Database, 2015). According to World Economic Outlook Database (2015),

GDP at market prices was $7.454 billion in 1998. GDP at market prices in Myanmar was

increased from 1998 to 2014, so GDP at market prices in Myanmar was $63.135 billion in

2014. Since 2000, the GDP growth rate in Myanmar has kept high GDP growth rate. The GDP

growth rate in Myanmar from 1960 to 2014 is shown in Figure 7 (World Development

Indicators, 2015 and IMF World Economic Outlook Database, 2015 for Data from 2005 to

2012). In 2008, the GDP growth rate in Myanmar was 3.6% because huge cyclone “Nargis”

influenced in agriculture and the recession in neighbor countries had effects on the rate (Sekiya

and Ito, 2011). After that, the GDP growth rate in Myanmar recovered. Based on the high GDP

growth rate, one can say that there is a great possibility to develop economy in Myanmar. What

points can be specific possibilities to develop economy in Myanmar? This section provides the

possibilities of economic development in Myanmar. In addition, this section shows the

problems of economic development and future issues.

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1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

$0

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

$60,000,000,000

$70,000,000,000

Figure 7. GDP at market prices (current US $) in Myanmar

Myanmar

Source: World Economic Outlook Database (2015)

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

-15

-10

-5

0

5

10

15

20Figure 8. Myanmar GDP growth (annual %) 1960-2014

Myanmar

Source: World Development Indicators (2015), and IMF World Economic Outlook Database (2015) for Data from 2005 to 2012

(i) Possibilities of economic development in Myanmar

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According to Ida (2005), there are three possibilities of economic development for

Myanmar: human resources, natural resources, and domestic market growth (p.219).

a. Human resources

Myanmar may benefit from a “demographic dividend” with a large share of the

population engaged in productive work and supporting a smaller share of older and non-

working people (Tanaka, Spohr, and Amico, 2015, p.43). According to Kano (2014), there are

cheap and good quality human resources in Myanmar. The population in Myanmar was

56,320,206 people in 2015 (World Factbook, 2015). In the scale of this population, modern

industries can be built. Comparing with countries in Greater Mekong Sub region which is the

countries along the Mekong River, such as China, Cambodia, Laos, Vietnam, Thailand, and

Myanmar, the population in Myanmar was virtually the same as the population in Thailand and

Vietnam which are already developing. The population in each country in Greater Mekong Sub

region shows in Table 1.

Country PopulationChina 1,365,485,388Cambodia 15,708,756Laos 6,911,544Vietnam 94,348,835Thai 67,976,405Myanmar 56,320,206

Table 2. The population in each country in Greater Mekong Sub region

Source: The World Factbook (2015)

In addition, the working-age population in Myanmar will increase until 2030. The

working-age population in each country is shown in Table 2. Based on its population,

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Myanmar has abundant human resources.

(unit: million)2010 2020 2030 2040 2050

From 2010 to 2030 From 2010 to 2050Thai 47.68 48.4 45.11 40.01 35.29 -5.4 -26

Vietnam 62.31 68.4 70.77 69.54 64.73 13.6 3.9Laos 3.81 4.77 5.8 6.7 7.24 52.2 90

Cambodia 9.07 10.66 12.33 13.73 14.22 35.9 56.8Myanmar 35.75 39.63 41.49 41.42 39.31 16.1 10Philippine 57 70.24 82.45 94.47 104.58 44.6 85.3Malaysia 19.08 22.79 25.09 27.18 27.84 31.5 45.9Singapore 3.74 4.33 4.29 4.26 4.19 14.7 12Indonesia 156.83 182.75 200.9 207.95 209.97 28.1 33.9

ASEAN10 395.6 452.29 488.57 505.58 507.7 23.5 28.3Bangladesh 96.31 115.69 128.73 135.5 134.43 33.7 39.4

China 999.57 1003.95 987.57 909.45 849.89 -1 -15Japan 81.19 73.67 68.91 61.03 55.16 -15.1 -32.1Korea 35.22 35.89 32.89 29.7 27.11 -6.6 -23

Source: UN, World Population Prospect: The 2012 Revision

Rate of Change(%)

Table 3. The working-age population in each country

Moreover, wages are comparatively low in Myanmar although recently wages have

been increasing. This can be an advantage for economic development because it is possible that

many companies from developed countries will try to advance in Myanmar.

The high literacy rate is also related to good quality human resources in Myanmar.

According to UNESCO (2015), the adult literacy rate, population over 15 years in Myanmar is

93.09%. The rate was higher than Cambodia and Laos. The adult literacy rate, population over

15 years in Cambodia is 77.19% (UNESCO, 2015). In Laos, the adult literacy rate, population

over 15 years is 79.86% (UNESCO, 2015). Besides, in 1980, the adult literacy rate, population

over 15 years was 79% in Myanmar, 65% in China, 67% in Indonesia, and 69% in Malaysia.

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(UNESCO, 2015). In 1980, Myanmar had higher literacy rate than many other developing

countries. The reason why Myanmar can keep high literacy rate is the spread of temple

elementary school (Kano, 2014, p. 62). Literacy is one of the most important things to develop

the economy. Therefore, one can say that Myanmar has a possibility to develop economy.

According to Kano (2014), although Myanmar’s human resources are abundant, a demand of

employment is still weak because of the economic underdevelopment. That’s because of a ban

on import of products from Myanmar was lifted with conditions in the United States in 2003. It

is difficult for companies from other countries to advance into Myanmar because they cannot

get enough benefit if they cannot make inroads in the United States market from Myanmar

(p.62). Myanmar needs to make the best use of abundant human resources which is one of the

possibilities to develop economy. Therefore, it is needed for using the human resources to

reinforce a demand of employment. However, according to Tanaka, Spohr, and Amico (2015),

“the country suffers from a number of key deficits in its labor market structure. A large share of

workers is underemployed and thus are not able to contribute their full energy to economic

output. Moreover, the workforce is relatively under-educated and low-skilled. And finally, the

creation of an organized workforce is still in its infancy, with most workers engaged in various

types of informal work and with a trade union movement that is only recently reviving after

years of the suppression. Labor disruptions due to strikes may pose a concern for foreigners

seeking to invest and take advantage of low wages” (p. 43). Although human resources in

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Myanmar has possibilities to develop their economy, there are many problems which have to

be improved.

b. Natural resources

Myanmar has abundant natural resources. There is Andaman Sea in South of

Myanmar, so Myanmar is endowed with resources of agriculture, forestry and fisheries, such as

rice, sesame seeds, beans, shrimp, and teakwood. Myanmar is also endowed with natural

resources, like gold, oil, natural gas, coal, silver, zinc, and tungsten, and jewelry, like ruby and

sapphire (Ida, 2005, p. 220). According to Clark (1999), “Myanmar is a resource-rich nation

that lacks the necessary capital and expertise to develop domestically and must rely on foreign

investment and technology if it is to increase resource development, production, and

utilization. Although in the future, the country may be able to rely more on Asian investors in

these sectors, at present this is uncertain. In particular, many of the primary investor nations

(France, the U.K., the U.S., Japan, Australia, and Canada) have some constraints on investment

in Myanmar that, under certain circumstances, may be strengthened and expanded” (p.787).

Therefore, natural resources is one of the strong possibilities to develop economy in Myanmar.

c. Domestic market growth

There is a possibility that domestic market will be developed because of cheap and

good quality human resources and abundant natural resources. According to Ida (2005), there

are three industries which have strong potential: simple labor-intensive industry, capital-

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intensive industry, and agro industry.

1. Simple labor-intensive industry

Simple labor-intensive industry, such as apparel manufacturer and assembly operation

of electronics product, has strong potential in Myanmar because low wages can be utilized in

simple labor-intensive industry. In Myanmar, there is no basic materials industry and parts

supply industry, so procurement cost for raw materials tends to be expensive. Therefore,

Myanmar needs to focus on industry which labor cost is higher to make the best possible use of

low wages. Besides, purchasing power in domestic market is still low, so it is better to establish

an export-oriented economic structure (Ida, 2005, p.221). Based on these, it is needed for

Myanmar to accelerate free trade agreements with other countries. The free trade agreements

can help Myanmar to develop Simple labor-intensive industry.

2. Capital-intensive industry

Next, capital-intensive industry which utilizes abundant natural resources also has

strong potential. However, Myanmar cannot use natural resources enough to develop economy.

According to Than (2005), “in terms of value-added output, Myanmar's energy sector is still a

small part of the overall economy. In 1990/91, the earliest financial year for which separate

sectoral data is available, the energy (oil & gas plus electricity) sector's contribution to the

country's GDP was only 0.99 per cent, whereas the electricity sub-sector alone accounted for

0.68 per cent. A decade later, in 2000/01, the energy sector's share rose to 1.6 per cent, while

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electricity's share came to 1.09 per cent”(p.284). In Myanmar, mechanizing and building

equipment were not developed enough. If these things are improved, there are possibilities to

expand a scale of productivity and promote work efficacy. Additionally, the food processing

technology in Myanmar is still low, so processed foods which have high added value, such as

snacks, alcohol, and fish paste, cannot be produced in Myanmar. However, if the food

processing technology in Myanmar is getting higher, it is possible that capital-intensive

industry in Myanmar can be developed based on abundant natural resources (Ida, 2005, p.221).

3. Agro industry

A domestic demand of agro industry can be expected because the composition of GDP

by sector of origin in Myanmar is agriculture: 36.1% and the rate is still high (World Factbook,

2015). Therefore, the government also focuses on agro industry. Specifically, food industry,

manufacture of farm machine, and fertilizer production can be a core of industrial

development. Especially, manufacture of farm machine can contribute to development of

machine industry. Agro industry is important for economic development in Myanmar (Ida,

2005, p.222) According to Sekiya and Ito (2011), to develop industries which have strong

potential, industrial policy which can make the best use of these potential factors is needed.

Especially, it is so important that industrial policy should be connected with attracting foreign

direct investment.

As a result, Myanmar has some great possibilities of economic development. Although

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there are some great possibilities of economic development in Myanmar, Myanmar is still

developing country and is not able to develop well. Next, this paper discusses what problems

of economic development and future issues are.

(ii) Problems of economic development and future issues

There are two main causes which economic development in Myanmar did not work

well: preparation of industrial infrastructure and education.

a. The underdevelopment of industrial infrastructure

According to Ida (2005), the underdevelopment of industrial infrastructure, especially

for electricity, communication, and transportation, hinders economic development in Myanmar.

1. Electricity

The condition of electricity is quite inadequate in Myanmar. “Lack of reliable power

supply is a main obstacle of industry in Myanmar cities. Similarly, water supply and sanitary

system is very crucial for product hygiene of most agricultural processing industries. In

addition, telecommunication system (telephone and internet) is necessary for production

coordination and business activities” (Rudjanakanoknad and Limsathayurat, 2015, p. 2,3).

Kudo (2007) did a survey about electricity in Myanmar. As a result, “69 firms among the 139

respondents answered that they had experienced power interruptions more than three times a

day and that these had often lasted for more than three hours. Therefore, most manufacturers

had to use their own and/or share generators. Out of 141 garment factories, 134 factories had

used their own or shared generators” (Kudo, 2007, p.13). Additionally, the toll collection

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system of electricity does not work well. Almost all citizens do not pay electricity charges, so

the government cannot collect fees. Therefore, the government cannot improve power facilities

and power distribution equipment in Myanmar because they cannot collect money for it. It is

needed to improve the toll collection system of electricity and use money from the system to

improve the condition of electricity (Ida, 2005, p.228).

2. Communication

According to Ida (2005), the underdevelopment of industrial infrastructure for

communication hinders economic development in Myanmar. The number of household fixed-

line phone is still low. In 1996, mobile phone was spread, but the users are limited because the

fee of mobile phone is expensive (p.229). The number per 100 population 2012, mobile and

internet users shows in Figure 8 (UNICEF, 2013). Based on Figure 8, The number per 100

population 2012, mobile phone were 11.2(UNICEF, 2013). The number does not have many.

On the other hand, the number per 100 population 2012, mobile phone were 132 in Cambodia

and 120.3 in Thailand (UNICEF, 2013). Although these two countries are still developing

countries, the users of mobile phone are a lot. Comparing with these countries, the diffusion

rate of mobile phone in Myanmar is so low (UNICEF, 2013). Since 2002, limiting browsing

web page was abolished and people can see every web site in the world (Ida, 2005,p.229).

However, according to Figure 8, the number per 100 population 2012, internet users was 1.1.

The number was so low comparing with other countries. It is needed to improve the low

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diffusion rate of mobile phone and internet in Myanmar because it can be one of causes to

hinder activities of foreign business in Myanmar.

Myanmar Thaiand Cambodia Japan China0

20

40

60

80

100

120

140

Figure 9. Number per 100 population 2012, mobile phones and Internet users

Mobile phonesInternet users

Source: UNICEF (2013)

3. Transportation

The underdevelopment of industrial infrastructure for transportation is one of the most

important problems in Myanmar. The development of industrial infrastructure for

transportation is imperfection because Myanmar got into financial trouble and foreign aid for

Myanmar had been stopped in 2003. In Yangon, the rate of paved road is high. However, the

rate of paved road on the whole is so low. The rate of paved road was 11.85% in 2005

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Moreover, surface condition is so bad, so it may cause transportation of precision instrument to

have trouble. Regarding train, although there is the government managed train in Yangon, the

train is old and poor quality. The marine transportation is also old and poor quality. Therefore,

transportation in Myanmar did not reach the level (Ida, 2005, p.229,230). The

underdevelopment of industrial infrastructure for transportation tends to hinder inland transport

and foreign trade. If the underdevelopment of industrial infrastructure for transportation is

improved, inland transport and foreign trade can be promoted more. It can be related to

developing their economy.

b. Education

Education is one of the most important factors to develop economy because education

influences in quality of labor and makes potential ability of economic growth higher. Although

literacy is high in Myanmar, professional education and higher education are not popular in

Myanmar. Therefore, there are few labors that have skills. There are two problems which are

related to education: low rate of school attendance and poor professional education.

1. low rate of school attendance

The primary school and secondary school participation, net attendance ratio (%) from

2008 to 2012 shows in Figure 9 (UNICEF, 2013). According to UNICEF (2013), the rate of

primary school participation in Myanmar was 89.8% in male and 90.6% in female. The rate

was high. However, the rate of secondary school participation in Myanmar was 58% in male

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and 58.6% in female (UNICEF, 2013). The rate was lower than the rate of primary school

participation in Myanmar. This can be a problem for the economic development in Myanmar

because it is difficult for people to get skills to work if they graduate from just primary school.

Male Female Male FemalePrimary School Secondary School

0

10

20

30

40

50

60

70

80

90

100

Figure 10. Primary School and Secondary school par-ticilation, Net attendance ratio (%) 2008-2012

Myanmar

Source: UNICEF (2013)

2. poor professional education

Thinking about labor in Myanmar, it is important to make more opportunity that

people can get professional education. According to Kano (2014), many excellent students in

Myanmar tend to go to university to study in the medical department and department of

technology. However, there are few vocational schools for workers and engineers, so there are

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few opportunities that workers and engineers can get professional skills without university

(p.68). The situation should be improved because Myanmar needs labors that have skills to

work. It can be related to the economic development in Myanmar.

To deal with two main causes which economic development in Myanmar did not work

well: preparation of industrial infrastructure and education, it is really needed to implement

industrial policy. If implementing industrial policy can solve problems Myanmar has,

Myanmar can develop their economy more and more. Therefore, Myanmar needs lessons about

industrial policy from past experiences of it. Next section examines what lessons from

experiences of industrial policy in Japan and China are.

Section 10. How to apply the lessons to Myanmar (Policy recommendation)

A. The model of industrial policy to protect and promote particular industry

First, the model of industrial policy to protect and promote particular industry is really

effective on economic growth in Myanmar. Myanmar does not have industries which can

maintain the state and the construction of foundation for economic development in Myanmar is

really weak. The government in Myanmar does not have enough savings to invest a lot of kinds

of industries, so the government in Myanmar needs to choose particular industry and protect

and promote the particular industry. If Myanmar can be successful in protecting and promoting

the particular industry, the development of the particular industry can make the circulation of

money to be better. The circulation of money is really important because GDP at market prices

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can increase and business would be better.

After World War II, the Japanese government implemented industrial policy, such as

priority production method, to protect and promote the particular industry. It can say that the

industrial policy helped Japanese economy to develop until what it is today. The model of

industrial policy to protect and promote particular industry can be applied to Myanmar as the

lesson from experiences of industrial policy in Japan. That’s because Myanmar has potential

industries, like simple labor-intensive industry, capital-intensive industry, and agro industry.

Moreover, there are abundant natural resources and great human resources in Myanmar.

Therefore, it is easier to apply the model to Myanmar.

This paper recommends the industrial policy to protect and promote capital-intensive

industry, especially natural gas, because of two reasons. First, natural gas is main export

product in Myanmar. The natural gas revenues show in Figure 11. According to IMF Country

Report No. 15, 268 (2015), “natural resource exports accounted for 70 percent of national

exports, or about 11percent of GDP in2012 /13, with natural gas alone making up 40 percent of

the total (US$3.6billion). Natural resources are the country’s prime source of foreign exchange

earnings and a major attraction for FDI, and contribute significantly to the government budget.

With 10 trillion cubic feet of proved gas reserves in 2014, Myanmar ranks 38th in the world

(US Energy Information Administration) and is the largest natural gas exporter in Southeast

Asia. The recently completed onshore and offshore oil and gas bidding rounds bode well for

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future production” (p.3).

Figure 11. The Natural Gas Revenue

Second, infrastructure development is necessary for protecting and promoting capital-

intensive industry, especially natural gas. The underdevelopment of infrastructure can be one of

the problems to hinder economic development in Myanmar. Promoting infrastructure

development can make the construction of foundation for economic development in Myanmar

stronger. Besides, promoting infrastructure development can increase employment

opportunities. Therefore, it can say that the model of industrial policy to protect and promote

particular industry is really effective on economic growth in Myanmar.

B. The model of raising revenue for industrial policy

Second, the model of raising revenue for industrial policy from experiences of

industrial policy in China can be applied to Myanmar. To implement industrial policy, like

developing infrastructure, the government needs huge funds for investment. In 1982, the

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Chinese government implemented the policy considering energy and transportation are

important, the Chinese government faced the financial problem because they did not have

enough savings for the policy. There is a possibility that the government in Myanmar will face

the financial problem like China had. To solve the financial problem, the Chinese government

came up with the national surcharge for construction of energy and transportation industry. The

Chinese government made the best use of their advantage: population. In Myanmar, population

can be one of their strong advantages. Besides, Myanmar has a strong advantage as well as

natural resources. Therefore, the model of raising revenue for industrial policy from

experiences of industrial policy in China can be applied to Myanmar. Fund is one of the most

important things to develop economy in developing countries. It is more important for

developing countries to build the system of fundraising for industrial policy by themselves than

being dependent on aid from advanced countries.

This paper recommends raising natural resources revenues. The tax revenue in 2014

shows in Figure 12.

Figure 12. The Tax Revenue in 2014

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Source: Myanmar Selected Issues, Asia and Pacific Department in International

Monetary Fund, IMF Country Report No. 15, 268, 2015

“Given Myanmar’s extremely low tax yield compared to peer countries (Figure 12),

natural resource revenues represent a vital source of income for the country. In order to realize

the revenue potential of this endowment, there is a need to review current practices to identify

weaknesses and address them based on international best practices. In particular, the fiscal

regime for natural resources should be revised to maximize the stream of net government

revenues; the fiscal framework should ensure a smooth and sustainable path of public

investment in development; and the institutions and procedures in support of these efforts

should ensure transparency, accountability and good governance to minimize revenue

leakages” (IMF Country Report No. 15, 268, 2015, p.5). Therefore, raising natural resources

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revenues is really effective on raising fund. Myanmar can make the best use of their advantage,

which is natural resources, if they tried to raise natural resources revenue.

C. The model of industrial policy to develop professional education system and

technology

Finally, the model of industrial policy to develop professional education system and

technology learned from experiences of industrial policy in Japan can be applied to Myanmar.

Myanmar keeps high literacy rate and has cheap and good quality human resources. However,

professional education system is weak in Myanmar. Therefore, many people cannot get high

skills to work. It may be related to the underdevelopment of economy. If the industrial policy

for development of professional education system and technology can improve technological

skills, level of not only technology but also human resources will be increased. The

development of professional education system and technology can contribute to economic

development. Besides, improving labor’s skill can increase employment opportunities of labor

in not only Myanmar but also the world and activate the consumption activity and the

circulation of money. In addition, to implement industrial policies, like promoting R&D, for

economic development, educational institutions and research institutions can be improved.

Improving educational institutions and research institutions can also improve educational

standard in Myanmar, so it is possible to increase labors that are active around the world. It can

make Myanmar be globalization and give Myanmar international competitiveness for global

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market.

This section discusses how to apply the lessons to Myanmar. However, the most

important thing is to implement industrial policy which can fit situations in Myanmar.

Therefore, it is needed to understand and analyze the situations more and more when the

government in Myanmar tries to make and implement industrial policy. That’s because the

situations are always changing.

Section 11. Conclusion

This paper examined previous experiences of industrial policy in Japan and China and

got lessons for Myanmar. In Myanmar, there are three possibilities to develop its economy:

human resources, natural resources, and domestic growth industry. Although there are these

possibilities, there are also problems which hinge economic development. One of the problems

is the underdevelopment of industrial infrastructure, especially for electricity, communication,

and transportation. Another problem is low quality of professional education system.

Based on analysis of Japanese industrial policy from 1945 to 1982, there are three

lessons from Japanese industrial policy. First, in developmental initial stage of economy or

restoration period after war, it is effective for development industries and economic growth to

proceed industrial policy by government for reinforcement of competitiveness of particular

policy. Second, it is effective on economic growth to focus on development of technology after

building the construction of foundation for economic revitalization. Third, the longer industrial

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policy does implemented, the weaker international competitiveness will be.

Moreover, based on analysis of Chinese industrial policy from 1945 to 1980s, there

are two lessons from Chinese industrial policy. First, industrial policy should be the policy

which can make the best use of advantages each state has. Second, Chinese central government

tried to implement industrial policy for development of regional industry.

There are also two common lessons from Japanese industrial policy and Chinese

industrial policy. First, both the Japanese government and the Chinese government

implemented industrial policies for the construction of foundation for economic development

and promotion of basic industries at first. Second, the most important lesson from experiences

of industrial policy in both Japan and China in common is to implement industrial policy on

right purpose at ideal time considering background each state has, such as culture, political and

economic background, advantage, location, and so on.

Based on these, this paper provided three policy recommendations. First policy

recommendation is the model of industrial policy to protect and promote particular industry.

Second one is the model of raising revenue for industrial policy. Finally, the most important

policy recommendation is the model of industrial policy to develop professional education

system and technology.

This paper examined only two cases of industrial policy, Japan and China, but it is

needed to examine cases of industrial policy in many countries. That’s because each state has

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its own industrial policy on its purpose. Therefore, next research needs to examine previous

industrial policy in a lot of countries.

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