WITH the Ford factory slated for closure in 2016 and Holden requesting a funding boost to avoid the same fate in 2016, the debate as to whether the Australian government should continue its support for the car industry is back in focus. One missing piece of information useful in this discussion is how Japan developed its automotive industry policy. Many well-known Japanese brands dominate the global car industry, with names such as Toyota, Honda, Nissan, Mazda, Mitsubishi and Subaru. It is therefore difficult to imagine that car manufacturing was one comparative advantage that Japan did not have in its early post-World War II years. Japan was a late comer in the automobile industry, and in the aftermath of a defeated nation, the country lacked both the capital and technology know-how that the US and Europe already had. Labour was abundant and unemployment was high, domestic savings were insufficient to fund a capital-intensive car industry. Consumers had little cash, and demand for cars was practically non-existent. Locally produced cars cost 40 per cent more than imported cars even behind a high protective barrier. This led Naoto Ichimada, the governor of the Bank of Japan (Japan's central bank) in 1950 to declare that Japan's resource endowment was ill-suited for car manufacturing. He argued: "It makes no sense for Japan to spend time and effort to nurture an automobile industry. Now is the age of international division of labour. America can make quality cars cheaply. Let them make cars! Some of the problems confronting the Japanese car industry in the 50s were similar to the challenges we face in our industry now. So how did Japan grow to become globally competitive, despite its initial lack of capital and a very small domestic market providing little economies of scale? "Not because of public policy" was the consensus opinion. The role of industry policy was merely coincidental at best. This proves to be a misguided opinion. Researchers drew the wrong conclusion because they examined and evaluated industry policies that targeted the final assembly industry. Japanese auto manufacturers/assemblers, of which Honda was a prime example, openly defied the directives imposed on the assemblers by the Ministry of International Trade and Industry. This gave the impression that Japanese auto assemblers were successful in spite of public policies. A crucial industrial policy that has escaped the due attention of researchers was the Provisional Act for the Promotion of the General Machinery Industry (or Provisional Act) enacted in 1956. This policy turned the Japanese automobile industry into an international success story. The upstream components supplier industry was the target of industry assistance in the 1950s. It, more so than the downstream assemblers, generated the bulk of employment for the Japanese economy. Many of them developed cutting-edge technology and became global brand names. Take Denso for example, it is among the world's top auto components suppliers. It employs 132,276 people worldwide. With an annual sale of $US36 billion last financial year, it is bigger than some Japanese assemblers such as Mazda, which has an annual sale of $US22bn ($23bn). Yet Denso started as a small-medium supplier firm in 1949 with no economies of scale in a small domestic market. It grew big and profitable rapidly, which the firm acknowledged were the beneficial effects of the Provisional Act. Vehicle assemblers like Toyota and Honda also profited from the positive externality provided by innovative firms like Denso. In Australia, we find ourselves once again at a quandary of deciding whether industry assistance should be given to the automobile manufacturers/assemblers. Is it not about time we investigate how we might be able to draw valuable lessons from Japan's experience with the Provisional Act? Evelyn Leung Anderson is an honorary fellow of Australian Catholic University and is writing an upcoming book: Automobile Tales Retold.