# IV. **THE' hOLE Olt CREDIBLE VISIONS**

As already noted, a very important factor behind the success of policy-based finance in Japan was the ability of government agencies to implement policy, appraise projects, monitor perfonnance and ensure compliance. The fact that policies were designed in extensive and effective consultations with the private sector facilitated their acceptance and stimulated cooperation in their implementation. But an important factor was also the existence of an official vision of the aims and instruments of industrial policy that enjoyed extensive support from the private sector and provided a framework for designing and implementing new measures and for stimulating effective private sector response. Effective visions implied not only credibility, consistency and continuity but also flexibility and adaptability to changing circumstances. The effectiveness of the official vision increased with the positive outcomes of early measures, which reinforced its credibility and acceptability.

Industrialization. A very lucid exposition of what may be described as the Japanese vision for industrialization was made in the statement by Ojimi (Vice Minister of MITI) in 1970 and included in the OECD study on the Industrial Policy of Japan that was published in 1972. According to Ojimi (1972): "The Ministry of International Trade and Industry decided to establish in Japan industries which require intensive employment of capital and technology, industries that in consideration of comparative cost of production should be the most inappropriate for Japan, industries such as steel, oil refining, petro-chemicals, automobiles, aircraft, industrial machinery of all sorts, and electronics, including electronic computers. From a short-run static u%ewpoint, encouragement of such industries would seem to conflict with economic rationalism. But, from a long-range viewpoint, these are precisely the industries where income elasticity of demand is high, technological progress is rapid, and labor productivity rises fast. It was clear that without these industries it would be difficult to employ a population of 100 ;. I '.on and raise their standard of living to that of Europe and America with light industry alone; whether right or wrong, Japan had to have these heavy and chemical industries." T'he Ojimi statement did not provide any documentation in support of the claimed orientation of industrial policy. In fact, some authors have implied an ex post rationalization on the part of MITI by describing the statement as an authoritative retrospective statement of MITM's accomplishments. However, in his seminal work on the Japanese miracle, johnson (1982) provided detailed references to the evolution of industrial policy<sup>5</sup> . According to Johnson, the first plan to develop a comprehensive approach to industrialization and exports was the plan entitled "On Making Our Economy Independent". which was prepared as early as 1953 when Okano (a former president of Sanwa Bank) was MITT Minister. The plan, which became known as the Okano Plan, outlined a new effort to expand exports, called for closer ties with South East Asian countries and for a rationalization of the tax system, advocated a vigorous program to develop import-substituting industries, and underlined the importance of expanding heavy and chemical industries that had a much higher income elasticity of demand than Japan's traditional light industries.

This is also strongly emphasized in work by Yotopoulos (1991).

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