The Problem of Regional "Hollowing Out" in Japan: Lessons for Regional Industrial Policy

This paper considers the problems of "hollowing out" using a Case Study of Japan's machinery sector. In doing so, it explores the roots of the present crisis by focusing upon the role played by Japan's large transnational corporations. This is important because these corporations are the "central actors" within the Japanese economy and they control a significant proportion of Japanese manufacturing. It is their strategic decisions - those that determine the level and location of investment, employment and output - which ultimately shape the development path for Japanese industry (see Cowling and Sugden, 1994, 1998). In recent years, Japan’s large transnationals have become engaged in the process of elite globalisation, pursuing their own interests at the expense of domestic Japanese industry. This is a fundamental insight that is crucial for designing appropriate policy responses to arrest Japan's current industrial decline. It is argued that the lessons from Japan's experience might guide policymakers in other regions, such as Wisconsin, who are concerned with future industrial development, the effects of globalisation and problems of "hollowing out".