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Technology and Industrial Development in Japan: Building Capabilities by Learning, Innovation, and Public Policy

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 1998
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Hiroyuki Odagin and Akira Goto

Oxford University Press. 1996, xiit + 309 pp., S75 (Cloth)

Japan was the first non-Western economy to industrialize. The broad outlines of its remarkable transition from a poor agricultural society in the 1850s to a major industrial power by the 1970s are widely known. What has been less widely acknowledged, however, are the details of how Japan managed the transition. Hiroyuki Odagiri and Akira Goto’s book admirably fills this gap in the literature.

The authors’ main thesis is that Japan succeeded in developing because it was particularly adept at importing technology from abroad. Following its isolation during the Tokugawa shogunate period, and again after World War II, the country found itself behind the West in technology. By importing and adopting technology from the United States and Europe, Japan managed to achieve faster growth rates than were seen anywhere else.

Importing best practices is easier said than done. Odagiri and Goto argue that a country must have the following four ingredients to effectively import foreign technology. First, it must have a deep pool of engineering talent. Second, funds must be available to send delegations of engineers and technicians overseas, hire foreign technical advisors, and license foreign- owned patents. Third, the country must have a group of entrepreneurs who can discover and take advantage of profit opportunities. Fourth, and most controversial, a company started with foreign technology should be given a reasonable chance of attaining a high level of profitability— usually by being granted a monopoly for one or more products.

Surprisingly, since Japan is often mentioned by other economic historians as a country where state-led development was important, Odagiri and Goto downplay the Japanese government’s role in fostering the importation of technology. According to the authors, the following were the Japanese government’s main contributions. First, it helped negotiate the terms of the technology importation with foreign companies. (The competition among Japanese firms to obtain technology was so intense that the royalty rates would otherwise have skyrocketed.) Second, it introduced preferential tax measures to encourage technology importation. Third, it restricted the market access of foreign companies by formal and informal means—a domestic firm with a license to use foreign technology therefore had little foreign competition and usually was able to earn high (monopoly) profits.

The authors devote six chapters to case studies of the following industries: textiles, iron and steel, electrical and communications equipment, automobiles, shipbuilding and aircraft, and pharmaceuticals. These chapters are the best part of the book. From them, we learn—for each industry—how the relevant technology was imported, adopted, and perfected. Except for aircraft and pharmaceuticals, Japan managed to improve upon the imported technology in all of these industries.

So much of the current writing about Japan starts with the close of World War II. It should not be forgotten, however, that Japan had already achieved rough technological parity with Western countries before the war began. This book provides the most detailed account and analysis of Japanese technological development in the century after the Meiji restoration of 1868. Learning about the technological development of Japan is important because it enables us to better understand not only that country’s economic history but also how economic development takes place.

Robert Dekle

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