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Japan’s Industrial Policies Do Work, But Urgent Reforms Are Needed

As the U.S. Congress hopefully finalizes a wide-ranging industrial policy legislative package, on the same order as the 1988 Omnibus Trade and Competitiveness Act passed to address the Japanese economic challenge, a number of pundits are pointing to Japan's economic performance as evidence that industrial policy is doomed to failure.

After all, they argue, Japan had an industrial policy through the Ministry of Economy, Trade and Industry, and just look at Japan's loss of technological leadership. Perhaps these free-market ideologues would change their tune if they actually looked at the data.

As Rob Atkinson writes in Nikkei Asia, ITIF’s Hamilton Index did just that, examining 10 nations’ output in seven key advanced industries: pharmaceuticals; electrical equipment; machinery and equipment; motor vehicles; other transport equipment; computer, electronics and optical; and information technology and information services.

At first glance, the industrial policy opponents seem correct. However, when controlling for Japan’s shrinking share of global gross domestic product from 18 percent to 6 percent, the picture looks quite different.

Read the commentary.

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