Development, the Japanese Experience

Development, the Japanese Experience

(Summary)

2/10/2008

Jun Yokota

1 Introduction

+150 years ago Japan opened itself up to the rest of the world and that period marks the beginning of our effort to catch up with the western industrialized powers. And this history more or less determines how we see ourselves in the present world, i.e. latecomers to the process of industrialization having had to struggle very hard to catch up, and this is why we tend to feel a great deal of sympathy towards the aspiration of developing countries for economic development.

+Broadly speaking, I am going to make the following 5 points:

-Japan owes its success to the quality of its human resources

-Government has played and is playing an important role, but a moderate one

-Japan is doing well in a number of technologies but faces stiffer competition

-Japan’s R&D effort is mainly led by the private sector

-The Government is currently trying to better focus its effort in R&D

2 History of Japanese Development: Two Phases

(1) Mid 19th to mid 20th Century

+Until the mid 19th Century, for 210years, Japan was off limits to foreigners, Japanese were not allowed to travel overseas and foreign trade took place only in one port in entire Japan. That changed in the 1850’s when the doors were pried open by several western powers.

+The Meiji Government was installed in 1868 and it immediately started the process of industrialization of Japan, seeing the need to catch up with the western powers in order to remain an independent nation. The Government established textile factories, shipyards, railways, telephone & telegraph, mines etc. It is generally believed that the role of the Government was crucial in kick-starting the process of industrialization, although some of them were quickly privatized. Thus without an energetic private business sector, Japan would not have been able to industrialize rapidly.

+ A widely shared view is that the crucial ingredient for success during that period was the relatively high level of education of the masses at that time.

+Also, Japan didn’t start from scratch in terms of industry, although they were at an artisanal level.

+It is interesting to note that from the very early days of Meiji, a heated race to improve the productivity of local machines was on in the area of textile industry even though there were textile factories established by the Government using state of the art machines easily beating local machines in terms of productivity.

+A word on the customs tariff regime of Japan at that time. Japan was denied the right to set its own customs tariffs. This severely limited the possibility for the Government to protect domestic industries by border measures.

It took more than fifty years for Japan to regain the right to set the level of customs duties. Japan received help from Latin America in this process, because Mexico was the first country outside of Asia to recognize that right for Japan in 1888 and Chile followed nine years later lending momentum to our effort.

+Personally, it is remarkable that, my country was able to industrialize without the possibility of protecting our nascent industries through customs tariffs and without any development assistance from abroad.

(2) From the mid 20th Century

+More recently, during the post-war period, it is a well known fact that Japan was able to experience rapid growth led by its exports. What was typical about the post-war economic growth in Asia was this phenomenon which later came to be known as flying geese style economic development. This could not have been possible without a fairly open trade and investment regime in the countries involved.

3 How does R&D fit into this bigger picture?

+I offer a few statistics that will characterize Japanese effort in the area of R&D as compared to other countries.

According to the OECD, Japan has 10.4 researchers per 1000 employees in 2004, and this is surpassed only by Finland. The number of patents can be considered as a surrogate for the innovativeness of a country. An OECD study shows that Japan’s share of tri-polar patent family is 26.2% in 2003 as compared to 37.1% for the US and 30.9% for the EU.

As a result, again according to an OECD study, Japan ranks 4th among 131 countries in the area of innovation.

+However, not everything is going well. This study as well as a certain number of papers that I have looked at, point to a number of shortcomings in the Japanese effort.

Japan devotes about 3.5% of its GDP to R&D, which is larger than most major countries for which the figure is between 1.9% and 2.7%. The share of the Government is relatively small, around 20% as against 30 to 40% in other countries.

This means that a big portion of research activity is carried out by the private sector, and thus the tendency is for emphasis on research in areas that can find immediate or quick application in the market place.

+Another notable aspect about the private sector R&D is that its amount is fairly

constant and little affected by the fluctuation in operating profit.

+Talking about the Government, the R&D budget request for the FY 2007 was 1.9 trillion yen or $18billion.

So far, the Japanese Government seems to have had the most success when it used a “soft” intervention approach, i.e., to push existing private efforts in areas which appeared to be most promising.

4 What is Japan’s position in the international scene?

+Japan occupies a very strong position in a number of products such as polarizing filter for LCD’ TV’s, lithium ion batteries for portable telephones and ceramic condenser etc. This is certainly a reflection of the R&D effort by the enterprises concerned.

+But there is awareness that that position is becoming increasingly difficult to maintain as a result of stiffer competition internationally.

5 Challenge facing Japan

+The demographic problem, i.e., rapid aging and net decline in population is the major problem facing Japan today because of its profound ramifications.

+There are other reasons to be vigilant because, in today’s world simply producing high quality goods is no longer enough to ensure an adequate market share.

+While the question of standard is becoming increasingly important, Japan is not good at persuading others to adopt a Japanese standard. Currently we are trying to convince as many countries as possible to adopt the Japanese standard for Digital Terrestrial Television Broadcasting. Brazil has done so in June 2006 and we thank Brazil for that. I hope other Latin American countries will find the merits of our standard.

+In a longer time perspective, many of us in Japan fear that our capital in human resources may be in danger. An OECD study comparing student achievements in various fields in the member countries show a constant decline in the position of Japan.

6 The Government response.

+In the Science and Technology area, in 2006 the Cabinet decided on the third Science and Technology Basic Plan, covering the year 2006 to 2010, in which it put emphasis on increasing effective R&D investment and introduced a fundamental reform of the Science and Technology system in Japan (e.g. more competition among universities, better human resources development, more international cooperation, more innovation friendly systems).

+More broadly, the Government of the former PM Fukuda laid out its economic policy in a cabinet decision entitled Economic and Fiscal Reform 2008 (June 27, 2008)

This cabinet decision proposes “to strengthen Japan’s economy by undertaking a comprehensive strategy for economic growth in order to play an active role in the world” and this is to be achieved through a number of policies among which science and technology related ones are the following:

“Enhancing technological capability where Japan has advantages

-Maintaining the lead in environmental and energy technologies

-Establishing “super special zones” (As a first step, establishing a super special zone for supporting the development of cutting-edge medical care)

-Establishing an emergency reserve budget for national projects to support innovative technology in a timely manner

+By the way, this cabinet decision also proposes to conclude EPA/FTA’s as a means to bolster growth. As a target, the share of the trade with EPA partner countries is to be raised to 25% or more from the current 13.6% by 2010.

7 Conclusion

+Next year Japan will be the host to the 4th Foreign Ministers’ Meeting of FEALAC. I hope that through this and other endeavors like our occasion today coming from both sides, our multi-faceted relationship will be further broadened and deepened.