Comparing One Aspect of Industry Policy in Two Countries - Example

COMPARING ONE ASPECT OF INDUSTRY POLICY IN TWO COUNTRIES AND FOCUSING ON ONE INDUSTRY .WHICH POLICY IS BEST AND WHY? Name: Course: College: Tutor: Date: Introduction The industrial policies adopted by any country are important determinants of the economic success of that country. A country that that have good industrial policies tends to do well economically. In many countries, the government is directly involved in formulation of industrial policies. Such policies are formulated after critical deliberations with all the involved stakeholders. A government may formulate policies that may for instance be intended to stimulate some certain sectors of the economy or even to control other sectors in order to derive required results. Industry policies give the government authorities powers to alter the fiscal and regulatory issues in the country in order to regulate the economic and industrial structures of a country. (McKenzie, 2002). Proponents of industrial policies argue that uncontrolled markets within the economy is harmful since it leads to unemployment, increased business failures, loss of government revenue, exploitation of the consumer, capital flight among other economic ills. Proponents also feel that the government should be involved in setting of the national industrial goals and in making sure that these goals are achieved. According to proponents, it is therefore important for development of industry policies so that the economy can be controlled. (McKenzie, 2002). The success of most developed countries in the world such as Japan, United States of America, the United Kingdom, Canada, Germany and others can largely be attributed to the development of good economic policies. In these countries, the industry policies encourage investment from local and foreign investors. In this paper, I am going to analyze by comparison the industry policies in United States of America and Japan in the manufacturing sector. These two countries have some of the world’s biggest manufacturing concerns. (Pollard, 2002, P. 113). Policies in the Manufacturing industry in Japan Japan has over the years experienced a constant growth in its manufacturing industry. The country has some of the largest manufacturing industries in the world. It is now very common in every country to find products of all kinds that have been made in Japan. The manufacturing industry in Japan is therefore brilliant and has taken a good share of the international market. The Japan manufacturing industry is dominated by machinery production. In fact some of the major machinery manufacturing companies are located in Japan and have established markets world wide. The general machinery industry in Japan produces mainly “engines, boilers, motor vehicles, turbines, agricultural machinery, construction machinery, metal working machinery, textile machinery, office machinery and special industry machinery”. (Kohama, 2007, P. 72). The manufacturing industry in Japan contributes a significant value to the country’s total Gross domestic product. According to Kohama (2007) “the total value added by the manufacturing industry in 2002 was ¥102 trillion, which represents about 20.5 percent of Japan’s ¥498 trillion GDP in that year” (P. 72). The manufacturing industry employs a large portion of the total population in Japan. The country has some of the world’s largest manufacture of motor vehicle. Japanese motor companies such as Toyota, Nissan, Mitsubishi, and Fuji have gained international recognition and are have markets in all corners of the world. Other great manufacturing industries include companies concerned with silverware and house ware, textile industries and industries involved in development of the information communication technology. (Itoh & Urata, 1994, P.21). Industry policies: The government of Japan, the private sectors, development partners and all involved stakeholders has for a long time been involved in development of industry policies that are aimed at improving and promoting the manufacturing industry. Government’s provision of capital: The government of Japan has for many years been providing capital to Japanese investors either directly or indirectly particularly through the medium sized banks and the Industrial Bank of Japan. The state provision of capital has been mainly in industries with strategic importance. These are industries in which the government is interested in stimulating growth. (Allen, 2003, P. 120). The government has also been offering preferential loans to the SME investors since 1954. These loans are offered at lower interest rates and friendlier repayment terms so as to enable investors upgrade their facilities. (Itoh & Urata, 1994, P.18). The manufacturing industry is one of the important sectors of Japan’s economy and has enjoyed government funding for many years. In 2002, the manufacturing industry contributed 20.5 percent value to the country’s total GDP. (Kohama, 2007, P. 72). Policy of Subsidies and friendly taxation: The state intervention in the economy of Japan has also been achieved through the policy of offering subsidies in certain sectors of the economy such as shipping, shipbuilding, and private railway construction. Subsidies have also been offered in production of certain chemicals such as soda ash, in the steel and iron industry and agricultural production. Apart from offering subsidies to manufacturers in these sectors, the government also establishes friendly taxation policies such as tax exemption; tax holidays, special taxation (Allen, 2003, P. 121). Collective technology support policy: The stakeholders in the Japan’s industrial sector acknowledge the importance of technological development in the sector for effective industrial growth. There have been efforts to support development of technology in the manufacturing sector by the involved parties particularly the government. The local government provides technical support on technology development by offering technical expertise from the public research institutes and universities to offer advice to investors. (Itoh & Urata, 1994, P.19). Marketing support policy: The majority of the manufacturing companies in Japan in collaboration with their governments have adopted a highly effective marketing support system. This promotes the Japanese products in foreign countries as well as the local market. The government particularly promotes marketing of products manufactured by Small and medium sixed enterprises since they cannot afford to do their own marketing. Larger companies are also encouraged to help smaller companies in marketing their products. This is achieved by sub contracting and entering into partnerships with such companies. (Itoh & Urata, 1994, P.29). Other policies: Many policies have been adopted by the Japan manufacturing industry players and more so the government. Other policies that have been formulated in the manufacturing industry include moderation of tariffs and duties, and establishment of government sponsored organizations in certain industries. These policies have been attributed to the fast growth of the manufacturing industry. (Allen, 2003, P. 122). Policies in the Manufacturing industry in the United States of America The United States of America is presently the world’s largest economy. The Success of the United States have largely been attributed to the diverse nature of its people, availability of resources, the democratic history of the country and the establishment of strong institutions. The availability of raw materials have made it possible for the country to establish some of the word’s largest manufacturing concerns that exports large amounts of their products to many countries in the world. (Brewer and Boyd 2000, P. 25). There are large textile industries in the US as well as machinery manufacturing industries, food processing, pharmaceutical and chemical industries in the United States. The government policy in promotion of industry is very important as is noted by Schaeffer, (2005), “The decline in the U.S auto industry in the 1970s was due to less government policy than to business practices and customer habits”. (P. 8). The proposition of National industrial policies (NIP) became very contentious in the 1984 general elections. The democratic presidential candidate Gary Hart was a strong supporter of the NIP while the Republican candidate Ronald Regan opposed. The NIP proponents argued that “the nation is in long term economic decline with little hope of a turn around without greater government involvement in the restructuring of the economy” (McKenzie, 2002). Some of the policies adopted by the United States manufacturing fraternity include the following: Industrial and economic democracy: This means that all stakeholders in the manufacturing industry including workers, company owners, consumers, the government and communities surrounding the manufacturing plant should be more involved in making decisions that involve “investment, disinvestment, and reinvestment in the firm”. (McKenzie, 2002). State expenditure on worker training and basic education: This policy aims at improving manufacturing efficiency by ensuring that workers are well trained and therefore effective in their work. This ensures that manufacturing companies in the United States are competitive and have plant cost reduction due to efficiency. (McKenzie, 2002). Protectionism: This involves protecting of certain key and strategic industries by controlling tariffs, quotas, taxation and other regulatory measures. The local industries is for instance protected from excessive competition from cheaper foreign goods by imposing heavy duties on such goods while offering lower taxation rates to local manufacturers. This ensures that the local products are cheap enough to compete with foreign goods. The government of the United States directly interferes with the market forces for instance by protecting the steel and semiconductor industry from unfair competition. These measures are adopted to ensure that the United States’ market is protected from unfair foreign competition. Other protectionism measures taken includes “Voluntary restraints agreements (VRAS), Orderly marketing agreements (OMAS), trigger pricing, antidumping surcharges and other remedies implicit in section 301 and 337 of the Trade Act of 1974”. (United States, Office of technology assessment, ND, P. 179). Other policies: According to United States, Office of technology assessment, (ND, P. 80), the stakeholders in the manufacturing industry in the United States have also promoted other polices meant to promote the sector. These involves strategies of improving Research and development in the manufacturing sector, minimization of losses, offering competitive taxation policies to local manufacturers such as in automobiles and steel industry. Establishment of development banks that will offer financial aid to manufacturers and the promotion of technology are important contributors to the industry’s success (Mitshuishi, Ueda, and Kimura, 2008, P. 5). Conclusion (The best policy) The industry policies adopted in a country are important determinants of the economic success of an industry as was evidenced in the decline of the U.S automobile industry in the 1970s due to excessive competition from Japanese automobile companies. (Schaeffer, 2005, P. 8). The best industry policy is the one that promotes the product produced directly to the final consumer. This is because the final consumer is the most important component of the production chain. The consumer’s demand for a certain product keeps the manufacturer in the business of producing the product. Industry players should therefore concentrate on making the best marketing strategies such as subcontracting and working together with manufacturers who are well established in the markets. Governments should also participate in promotion of their countries’ products in the international markets. (Itoh & Urata, 1994, P. 29). References: Allen, G. C. (2003). A short economic history of modern Japan, 1867-1937, Volume 1. London: Routledge Brewer, T. L. and Boyd, G. (2000). Globalizing America: the USA in world integration. Massachusetts: Edward Elgar Publishing. Itoh, M and Urata, S. (1994). Small and Medium-Size Enterprise Support Policies in Japan. Tokyo: World Bank Publications Kohama, H. (2007). Industrial development in postwar. Oxon: Routledge McKenzie, R. (2002). The Concise Encyclopedia of Economics Industrial Policy. Retrieved on 17, April, 2011 from: http://www.econlib.org/library/Enc1/IndustrialPolicy.html. Mitshuishi, M, Ueda, K and Kimura, F. (2008). Manufacturing Systems and Technologies for the New Frontier: The 41st CIRP. London: Springer. Pollard, M. C. (2002). Master potter of Meiji Japan: Makuzu Kôzan (1842-1916) and his workshop. Oxford: Oxford University Press. Schaeffer, R. K. (2005). “Understanding globalization: the social consequences of political, economic, and environmental change”. Maryland: Rowman & Littlefield, United States. Congress. Office of Technology Assessment. (ND) U.S. industrial competitiveness: a comparison of steel, electronics, and automobiles. Cornel: DIANE Publishing Read More