This case study takes a dynamic view of the interface between the Japanese government and the global market. Terutomo Ozawa emphasizes Japan's particular political ideology that national governance should help to harness and steer market forces in a way that promotes national economic goals and the comparative dynamic advantage of indigenous resources and capabilities. At the same time, as the Japanese industrial structure has moved from being national‐asset based to knowledge based, the government's macro‐organizational role—and particularly that of the Ministry of Industry and Trade (MITI)—has changed from being that of a ‘national industrial architect’ to a ‘trade‐conflict negotiator’, and ‘a vision‐builder’. Ozawa also observes that the outcome of the managed market has not always been as intended, In fact, it has created two differently structured sectors: the first is an outward‐focused super‐efficient sector, which drives Japan's Schumpeterian‐type exports and foreign investments; the second is an inner‐dependent sheltered and over‐regulated sector, which has been trapped in a vicious circle of declining competition. While the pragmatic and adaptive style of Japanese governance has done much to foster the former sectors, it has also done little to discourage large uncompetitive sectors of industry, which can survive only by investing abroad in low‐cost environments.
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