Industrial policy without carrots or sticks: Non-coercive administrative guidance in Japan.

Abstract

Active intervention by the Japanese government has often been cited as a leading cause for Japan's high rate of post-war economic development. In particular, extra-legal administrative guidance (<italic>gyosei shido </italic>) has been identified as a means by which Japanese, bureaucrats have coordinated business activities to enhance growth. Firms have been thought to adhere to <italic>gyosei shido </italic> because of implicit threats, but this is often inconsistent with the actual powers available to Japanese bureaucrats. This dissertation examines the mechanisms of non-coercive administrative guidance, with an application to voluntary export restraints coordinated by MITI for the Japanese automotive industry. A formal model of a voluntary export restraint with non-coercive information provision by a bureaucracy is derived and shown to be consistent with Japanese economic development and the developmental state. Non-coercive administrative guidance is found to be effective when the bureaucracy can leverage information to guide firms towards a mutually beneficial outcome. The historical conditions of the wax and wane of MITI's legal authority are found to explain the apparent success of non-coercive administrative guidance in the automotive industry.