The purpose of this book is to use the postwar Japanese political-economic experience to answer a question that has divided Japan and other Asian scholars for over two decades, namely, how governments choose which industries to favor. This is an important question for both intellectual and policy reasons. Indeed, answering this question will help determine which of two very different points of view better explains Japan's postwar trajectory and will assist the governments of the developing world to design and enact policies that best serve their economic development goals. Saadia Pekkanen addresses this question with a rich variety of quantitative and qualitative data, the former captured in an expanded data set that breaks down the Japanese economy and trade and industrial policy tools by two-digit economic sectors, and the latter involving short case discussions of specific industrial sectors and an extended case study of the commercial space industry.

After stating the problem to be addressed, the author clarifies the two views that have competed for dominance as the best explanation for Japan's postwar economic trajectory. One view sees the Japanese government selecting industries for promotion on the basis of economic criteria, such as their contribution to the industrial and technological future of Japan's manufacturing base. This view is rooted in the idea that governments can identify economic sectors that are characterized by external economies and rents and see that they get resources they otherwise would not get. This view also places Japan's bureaucrats at the center of the economic policymaking process, which contrasts significantly with the alternative view that understands industry selection as the result of political considerations, specifically, the reelection concerns of Japan's politicians. This view places Japan's elected officials at the center of the policymaking process, who then use the government resources available to them to serve their own parochial interests.

Each of these two views predicts a very different allocation of government resources, and Pekkanen concludes that the distribution of industrial support suggests that the Japanese government selected industries to support more on the basis of economic criteria than in light of the reelection concerns of Japan's politicians. She makes this determination by means of an extensive and carefully designed econometric analysis, after which she expands on the quantitative results with several sector-specific case studies and a larger case study of Japan's commercial space industry. Since the book's conclusions rest entirely on the quantitative analysis, that part of the volume deserves more attention.

Pekkanen builds on an earlier analysis published in the Review of Economics and Statistics in 1996 by defining eight tools of trade and industrial policy and then determining how much of each was received by 12 two-digit economic sectors from 1955 to 1990. To explain the varying levels of government support each sector received, she separately regresses these tools of trade and industrial policy on nine independent variables that capture both the economic and political logic by which these government resources may have been allocated. While the results do not show overwhelming support for either view, the author contends that the preponderance of quantitative evidence is in favor of the view that the Japanese government selected industries to support on the basis of economic criteria. To be sure, this is an important finding that is evaluated in different ways with quantitative data and expanded on in the case discussions, but its validity rests on several assumptions that may not in fact be supportable by the analysis presented in this book. These assumptions involve both general questions about how the research design addressed the overall problem of industry selection in postwar Japan and specific problems about whether the model was specified in a way that supports the book's overall conclusion.

While there are a number of specific model-specification issues that call the author's conclusions into question, three are most important. First, the author eliminated the mining sector from the analysis, which other researchers have shown to be quite favored by the Japanese government. She stated that the book's purpose was to focus on Japan's industrial sectors (fair enough), but others have shown that the mining sector—a sector that is hardly representative of a bureaucratically directed, nationally oriented industrial policy—received more low-interest Japan Development Bank loans, government subsidies, and tax relief than any other economic sector. In light of this, one has to ask how the overall results would have differed if this thirteenth sector was included in the analysis.

Second, the author includes the impact that amakudari (the practice of placing bureaucrats into private sector positions after retirement) may have had on the allocation of government support to Japan's 12 economic sectors, and the results show that it was by and large not an important explanatory factor. The econometric results are clear, but the author interprets them as supporting the view that economic criteria were mostly responsible in the selection of the industries that the government would favor. This is curious since the literature on Japanese industrial policy argues that amakudari is a tool of Japan's bureaucrats, and not politicians. Consequently, the overall insignificance of this variable rejects the economic and not the political view.

Thirdly, the influence of politicians in industry selection is measured by the number of votes an economic sector has, and the author concludes that this variable was not an important explanatory factor. The reason is that, when significant, the signs on this variable's coefficients were not in the expected positive direction. There are essentially two problems with this conclusion. First, expecting the number of votes in an economic sector to be positively related to the amount of government support it received assumes that economic sectors were favored by the Liberal Democratic Party (LDP) strictly on the basis of their size. We know well that the LDP favored certain sectors over others, which tells us that this variable does not capture the potential impact that political criteria may have on industry selection. To capture this, we would need to identify critical LDP sectors through dummy variables or, given the importance of small business for the LDP, the average size of firms in a sector. Second, we know from the political economy literature that it is when economic sectors are in decline that they become politically vocal, and not when they are economically healthy and growing. This means that we should expect the coefficients on this variable to be negative rather than positive.

In light of these model specification problems, we need to ask if the results presented in Picking Winners actually support the economic criteria view. In Chapter 3, the author uses two measures to trace the ranking of sectors in terms of the trade and industrial policy support they received. This is an interesting and thoughtful analysis, but it leads this reviewer to a very different conclusion than the one presented. From 1955 to 1990, Japan's leading-edge industries, such as transportation machinery, electrical machinery, and precision instruments, consistently ranked lower on government support levels than such politically sensitive industries as basic metals, textiles, and paper. Again, in light of this and other issues raised here, can we conclude that government support for Japanese industry was directed by bureaucrats in light of nationally focused economic criteria? While this book has not made a convincing case for an affirmative answer, it has opened the door to the nature of the problem we face with respect to Japanese industrial policy and the manner in which it needs to be addressed. For these reasons, the book is essential reading for all interested in Japanese industrial policy in particular and postwar Japanese political economy in general.