| Industrial policy has long been considered as one major contributor to Japan's postwar economic miracle. It characterizes Japan different to other industrialized nations in terms of organizing its economy. However, the confusing definition of industrial policy has made discussion difficult. I argue that industrial policy is a product of Japanese elites' market failure mentality. It simulates artificial market forces to promote strategic industries in countering the structure constraints for Japan as a late industrializer and lacks of natural resources. Moreover, the postwar self-imposed weak military structure has affected Japan's industrial development and produced several problems. On the other hand, the elites' market failure mentality has also shaped the substance of Japan's reforms in the 1990s. Thus, the reforms have created many institutional innovations to enhance existing institutions. As such, the post-bubble industrial policy has utilized these institutional innovations to create more artificial market incentives in countering market imperfections in Japan's robotics and aircraft industries. In sum, for the existence of market failure mentality and weak military market structure, Japan has adopted different institutions and strategy on its way to prosperity. |
