Comments on "Osaka's Asia linkages strategy." (response to Richard Child Hill and Kuniko Fujita in this issue, p. 492)

In this article, Richard Child Hill and Kuniko Fujita probe the growing economic links between Osaka--Japan's third largest city--and other Asian economies. They seek to explain why foreign direct investment by Osaka firms has neither hollowed out the city's industrial base nor adversely affected development in the recipient countries. Three principal factors are highlighted. First, Osaka has benefited from Japan's "developmental state," through which government intervention has fostered the upgrading of technology and promoted competitive advantage. Second, East Asian economies have gained from inward investment by Japanese corporations through a flying-geese development model that ties the constituent economies together in a mutually reinforcing production and innovation system. Third, Hill and Fujita emphasize the role of local policies and "third-sector" institutions in assisting Osaka's numerous small and mid-sized suppliers to adjust to offshore sourcing by the city's large corporations and to develop new products able to sustain their business positions.

The arguments advanced in the article are powerful, but it would be misleading to accept them entirely without comment. For example, from the vantage point of 1997 (as opposed to the early 1990s, when at least some of Hill and Fujita's research was undertaken), Japan's developmental state does not seem as effective as the authors suggest. There is little dispute that the state played a critical role in Japan's high-growth era during several decades following World War II. More …