From: rick@cs.arizona.edu (Rick Schlichting)
Newsgroups: comp.research.japan
Subject: Kahaner Report: Japanese tech ideology & aircraft industry (2 of 2)
Date: 26 Aug 92 21:45:16 GMT


  [Dr. David Kahaner is a numerical analyst on sabbatical to the 
   Office of Naval Research-Asia (ONR Asia) in Tokyo from NIST.  The 
   following is the professional opinion of David Kahaner and in no 
   way has the blessing of the US Government or any agency of it.  All 
   information is dated and of limited life time.  This disclaimer should 
   be noted on ANY attribution.]

  [Copies of previous reports written by Kahaner can be obtained using
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To: Distribution
From: 
 David K. Kahaner
 US Office of Naval Research Asia
 (From outside US):  23-17, 7-chome, Roppongi, Minato-ku, Tokyo 106 Japan
 (From within  US):  Unit 45002, APO AP 96337-0007
  Tel: +81 3 3401-8924, Fax: +81 3 3403-9670
  Email: kahaner@cs.titech.ac.jp
Re: Japanese technology ideology & aircraft industry (2 of 2).
24 August 1992
This file is named "mitjp921.b"

ABSTRACT. Japanese technology ideology illustrated via the Japanese
aircraft industry. (Friedman & Samuels extracts, part 2 of 2).

See file "mitjp921.a" for other parts of this report.

   I. THE ORIGINS AND CONTOURS OF JAPAN's TECHNOLOGY AND SECURITY IDEOLOGY


                       From the moment Tokugawa Ieyasu united nation and
state at the turn of the seventeenth century, the Japanese people have been
exhorted to make sacrifices to enhance national security in a hostile
world.  At different times and in different measures, this mobilization
has mixed xenophobia, religion, militarism, and nationalism.  It is well
recognized that Japan's early industrialization was led by military
industries to enhance national security by "catching up and surpassing
the West" (oitsuke, oikose).  Later, of course, the Meiji era
mobilization symbolized by the slogan, "Rich Nation, Strong Army,"
proved calamitous.  In the postwar era, sheltered by the U.S. security
umbrella, Japanese citizens have been motivated by a techno-national
ideology for more purely commercial purposes.

                       Whether applied to the military techno-nationalism
of the first half of Japan's industrialization, or to the commercial
techno-nationalism of the second half, three constant elements of
security planning have obtained in Japan: (1) the national struggle for
independence and autonomy through indigenization of technology
(kokusanka); (2) a national commitment to diffuse this learning throughout
the economy (hakyuu); and (3) the national, regional, local and
industrial sectoral effort to nurture and sustain appropriate Japanese
enterprises to which technical knowledge can be diffused and further
refined (ikusei).

                       Indigenization, diffusion and nurturing combine
in the belief that Japan is more secure when it achieves independent
scientific and technological capabilities to design, manufacture and
innovate.  Each is derived from a pervasive sense that Japan must
compensate for its special vulnerabilities in a Hobbesian world.  This
feeling of insecurity and vulnerability (fuan) has been articulated
repeatedly throughout Japanese history.  In the 18th century, a Sendai
nobleman, Hayashi Shihei, warned the shogunate (roughly at the same time
Alexander Hamilton similarly admonished the fledgling U.S. government)
to protect Japanese manufactures or face foreign domination.  A century
later, bridling at having to purchase antiquated weapons from the west,
Meiji leaders drove Japan to adopt "Western learning with Japanese
spirit" (wakon yosai). Following Japan's defeat in the Pacific War, Navy
Minister Yonai Mitsumasa proclaimed "the loss of the war was a
technological defeat." Informed by this perspective, and afforded the
luxury of U.S. security guarantees, over the next half century Japan set
out to build its general technological capabilities to enhance its
national security, rather than merely develop military resources alone.

                       The same perceived vulnerabilities that justified
Japanese militarism also influenced the country's commercial strategies.
In postwar commercial Japan, foreign direct investments have been
discouraged in favor of joint ventures that maximize technology
transfers. When domestic manufacturers have lacked capabilities in key
areas, they have typically elected to buy licenses rather than import
products.  Fundamental to Japan's technology and security ideology is
the belief that "security" means comprehensively building the nation's
productive and technological capabilities rather than simply amassing
military hardware.  Japan has sought to compensate for
apparent economic, technological political, and social vulnerabilities
which it believes demand special vigilance beyond merely responding to
military threats and enhancing military preparedness.  Japan's
conception of  "comprehensive  security"  (sogo  anzen  hosho)  is
merely  the latest and most elaborate articulation of an techno-national
ideology that has driven its security concerns for more than a century.

                        Indigenization, diffusion and nurturing have
been, and continue to be, the  core  values  that make up Japanese
security thinking.  Each reinforces the objectives of the other,
together, they provide the blueprint from which Japan's remarkably
successful postwar commercial strategies and its growing military
capabilities - have been constructed. Technology indigenization is thought
to be essential so that at the least, Japan can autonomously possess
leading-edge design, manufacturing and production knowledge; at best, it
can set the pace for world technology development.  Once indigenized,
domestic technical knowledge diffusion is essential so that Japanese
producers can collaborate to exploit fully the results of their efforts
while competing vigorously to ensure that ultimate commercial (or
military) applications are  achieved  with  optimal efficiency.  Finally,
firms in Japan are nurtured and sustained by a system of alliances and
protocols so that the knowledge that has been diffused is not lost
through calamitous economic dislocations (such as business cycle swings,
short term capital shortages, commercial product failures, market
consolidations) which can wipe out entire sectors in other nations.
Nurturing  also assures that, in the future, technology can be diffused
to enterprises that have steadily absorbed design and manufacturing
knowledge,  developing  the  economic  wherewithal  to  produce
first-rank products for civilian or military end-users.

                        Let us explore the three interwoven strands of
Japan's technology  and  security  ideology  in more detail.

                 A.  Autonomy and Indigenization

                        Writing of the intellectual origins of modern
Japanese bureaucratism, Tetsuo Najita has explained Japan's "unadorned,
yet pervasive perception" that  national  development  is  a  matter  of
"autonomy," and that "national integrity" can be achieved "only
through economic power (fukoku)." Japan's. first national research
institutes were established by MITI's forerunner, the Ministry of
Agriculture and Commerce, to fortify Japan, achieve independence from
foreign industrial products, and meet the Western imperialists on their
own terms. The Meiji leader, Fukuzawa Yukichi, wrote in his classic
treatise, The Outline of Civilization (Bumneiron no Gairyaku), that both
civilization and wisdom were necessary to protect the nation.  Wisdom,
he argued, could be learned from abroad but was best nurtured and
applied at  home.  From  the  start, influential Japanese taught that
the advancement of independent knowledge and scientific competence were
as necessary as military power to achieve security.

                        In response, throughout the Meiji period Japan
strove to learn Western technologies particularly military technologies
-- and indigenize them as soon as possible.  Foreign tutelage  for
national strength was enshrined in the Charter Oath of the Emperor Meiji
in 1868: "Intellect and learning would be sought throughout the world in
order  to  establish  the  foundations  of  Empire." Independent arms
manufacture based on  imported  foreign design  and  manufacturing
skills,  the most modern industrial sector in the Meiji era, led Japan's
forced march to industrialization.

                        This process of indigenization is called
kokusanka (literally "nationalization") in Japanese.  From Meiji to the
present, private and public procurement decisions have been guided by
the "three unwritten principles of kokusanka: (1) domestic supply; (2)
if domestic supply is not possible, licenses should be secured using
domestic manufacture and equipment; and 3) equipment should have broader
application than specific to the project for which purchased. In
accordance with these principles, in both military and civilian cases,
each subsequent generation of Japanese products has usually depended
less than its predecessor on foreign technology.  So crucial has
kokusanka been in Japanese thinking that some  of  the  most  important
debates  over industrial development and industrial policy in Japan have
centered on how to achieve local control of knowledge.

                        The Defense Production Committee of  Keidanren
has  justified  kokusanka,  which  it  has championed, in at least five
ways: (1) Japan's unique policy of "defensive defense" requires
different equipment than that manufactured in Europe and North America;
(2) the "special spirit and body size" of Japanese military personnel,
as well as Japan's special "land, water, and seas;" (3) licensing breeds
dependence of the licensor on the licensee, making upgrading difficult;
(4) licensors are less willing to transfer technology to Japan, now that
Japan's technological level has improved and (5) co-development with
other nations can succeed only if Japan has something of its own to
offer. The significance of this and numerous other similar arguments
is  its  almost total lack of any credible military rationales for
autonomous weapons development.  Rather, kokusanka is justified to avoid
foreign dependence generally and to specifically improve Japan's
bargaining position when obtaining technologies from abroad.  This
philosophy has been implemented in Japan's procurement practice: using
aggregate time series budgetary data, for instance, Bobrow and Hill (1991)
found that Japanese military budgets reflect military calculations
only in part. In addition, "autonomy" and "dependence" concerns explain a
significant portion of Japan's defense priorities.

                        The struggle for technological autonomy has not
slackened now that Japan has emerged as a technological superpower.  To
the contrary, parity with  the  United  States  (and  the  prospect  of
considerably more intimate bilateral transfers of defense technology) is
frequently used by industry and by the bureaucracy to justify demands
for increased funding for scientific  and  technological development and
for accelerated kokusanka. A group of industrialists convened by the
Keidanren responded to demands from the United States for technology
co-development by arguing for accelerated autonomous defense technology
strategies to insure against a U.S.  technology blockade.

                        Efforts to achieve autonomy are also central to
the process of Japan's international cooperation.  Consider these opening
lines of the most recent report on "Promoting International Cooperative
Aircraft Development" of the Japanese Machinery Industry Alliance and
the International Aircraft Development Fund (of MITI).

                        "It goes without saying that in order to secure,
a stable rank in international society, it is essential to more fully
utilize our nation's meager resources and above all to develop industrial
technological capabilities of the highest level, leading the world.  In
order to do this, we must arouse the passion for nurturing indigenous
technological development and fortification, as well as for a
technological renovation second to none.  In order to overcome the
fragility of our resource poverty and to establish economic security, we
must turn toward a policy to promote the nation based upon technological
improvement making this our target especially now that Japan is a
technological nation."

                A survey of Japanese defense production capabilities by
the Mitsubishi Research Institute in 1987 was even more blunt about the
tactical use of international cooperation to foster autonomous technology
development in Japan:

                        "With the exception of some very advanced high
technologies, the commercial base of Japanese electronics materials and
vehicles technology are equal to or better than in the United States and
Western Europe.  We anticipate progress in commercial-led R&D for
military application.  However, in those areas of high technology where
domestic technology is behind, it will be necessary to supplement
[domestic efforts] with international cooperation..."

                The drive to indigenize and autonomously control
technology remains as vital as ever in Japanese strategic thinking.

                B. Diffusion

                        But it is not just a concern to indigenize and
develop autonomous technical capabilities that is noteworthy about
Japan.  After all, autonomy is widely accepted as a legitimate goal of
every nation's security policy.  But Japan is also uniquely committed to
diffusing technologies as broadly as possible throughout the economy.
In practice, technology is often treated as a quasi-public good that is
developed and distributed through elaborate networks of producers and
bureaucracies.  Participants in the process believe that proprietary
technology can be distinguished from generic information and that each
contributes significantly to Japanese national security.  As a
consequence, Japan has built an extensive network of "technology
highways" -- an infrastructure comprising at least as many lanes, but
perhaps fewer roadblocks than its U.S. counterpart.  Indeed, because the
Japanese system facilitates extensive inbound (but much less outbound)
technology "traffic" from abroad, it is able to exploit the
opportunities other countries have created to promote technology
exchanges as well.  As a result, Japanese technology highways more
effectively acquire and diffuse global and domestic technologies than
similar systems in other countries.

                        Further, roadblocks impeding the inter-diffusion
of military and civilian technologies are in evidence considerably less
in Japan than in the United States.  Unlike in the U.S., Japan's
technology highways can accommodate automobiles, trucks, or tanks with
equal facility.  We noted above that national power and industrial
autonomy were interdependent in the view of Meiji leaders.  So too were
military and civilian technologies. The first machine tools were
manufactured in a government arsenal in 1869, and modern communications
technology was first used by the army to suppress the Satsuma Rebellion.
As the academic/bureaucrat Kobayashi Ushisaburo explained in 1922, the
diffusion of basic technologies initially absorbed for military purposes
was later crucial in building Japan's commercial industries:

                       "While the manufactured articles made as war
materials are seldom fit for general use, the tools and machines that
manufacture them may for the most part be used for making other kinds
of articles wanted by the people at large ... One industrial work is apt
to cause another of a similar kind, and so on, and the result was the
evolution of all sorts of new industries.  But that is not all.  Workmen
who had been employed and trained in the military industry went to work
elsewhere in private factories or started little works of their own."

                       Kobayashi's analysis remains true today.  The
inter-diffusion of military and civilian products, process technologies,
and skills has been of incalculable benefit to Japanese national
development.  Indeed, it has become so engrained that Japanese managers
often disclaim any interest in tracking the diffusion of military
technology because "we don't make any such distinction."

                       The low barriers to the inter-diffusion of
civilian and military technologies profoundly shaped Japan's postwar
development.  The country's earliest export successes, such as cameras,
watches, and small machinery, were developed under the supervision of
former military engineers.  Senior executives of many of Japan's most
successful firms -- including Morita Akio and Ibuka Masaru, the founders
of Sony -- learned their first lessons about manufacturing and
technology management in the laboratories and factories of the Imperial
Navy's Naval Air Arsenal (Kugisho).

                       Once the United States began sourcing in Japan
for goods and services during the Korean War, Japanese firms used U.S.
military procurement as a technological locomotive for the entire
economy.  This "special procurement" (tokuju) resuscitated then-moribund
Japanese industries by transferring American engine and machinery
technologies, and introducing production, quality control, and
manufacturing process know-how.  According to surveys done in the
1960's for the Defense Production Committee of the Keidanren military
demand, and especially technologies first introduced for military
production such as materials processing, wireless communications and
propulsion, actively contributed to Japan's commercial economy for at
least two decades after the resumption of military production in 1952
(contrary to conventional wisdom). Keidanren repeatedly demanded
increased military production in part because "the diffusion of modern
weapons production raises the technological level of general
industry...." Engineers noted in surveys that participation in defense
research and development "helps raise technological capabilities in
other areas" such as systems integration and design.

                           Today, even Japan's prime contractors
unlike  U.S.  primes  that   virtually   isolate   defense from
commercial  production  --  make  no  distinction   between   military
and   civilian   products,   except at final assembly.  At both the
prime and supply levels, components and sub-assemblies are designed  by
the  same  engineers  and  are  produced  by  and  tested  on   the
same   equipment,   regardless of  the  project  for  which  the
equipment  was  initially  obtained  or  the  ministry  from  which
subsidies may  have  been  initially  derived.  As  long  ago  as
1966,  more  than  80   percent   of   the   production equipment
employed   in   the   manufacture   of  military   products   were   used
for   non-defense   products as well.

                           Knowledge  diffusion  in  Japan  occurs  at
several  levels,   both   inside   and   among   firms   and between
sectors.  It is accomplished through parallel, undifferentiated efforts
affecting both commercial and military technologies.  In the case of
military production, the major defense contractors are diversified
manufacturing conglomerates that take special pains to establish
mechanisms such as project teams, extensive corporation-wide study
groups, and technology focus  centers  for  functional  area
specialists,  to  share   know-how   and   experience   across
divisional lines.  Although Japanese prime contractors rarely transfer
engineering personnel across applications,  they  actively  seek  to
transfer  knowledge  accumulated  in  one  area  to  others  within
the firm.

                          The result is a cadre of multi-functional
design and manufacturing specialists who understand  their  application
area  comprehensively   and   who   are   expected   to   systematically
diffuse their accomplishments company-wide.  Even though engineering and
technical staff do not typically leave their specific application areas,
they each participate in every phase within the program  from  design
to  production,  and  they  participate  in  a   range   of   intra-firm
mechanisms   that transfer their knowledge.  It has thus been
comparatively easy for statistical quality control appropriate for
military production to diffuse throughout the machinery industry
divisions of Japanese  primes,  for   commercial   automated
manufacturing   processes   to   rationalize   fighter   aircraft parts
production  beyond  what  even  the  American  licensors  can   achieve,
or   for  aerospace   materials to  improve  automobile  and  bus  body
production. In the United   States   prime   contractor
defense production is  something  to  protect,  isolate,  and  classify
within  the   firm.   Defense   designers   only design;  process
engineers  focus  only  on  production.  But  in  Japan,  defense
production   is   like   any other resource for advanced basic and
process technologies within  a  firm  from  which  technological wisdom
is to be mined and integrated into the firm.

                         Technology  also  diffuses  horizontally  among
competitors.  Much  of  Japan's  technological capacities were fostered
by novel and borrowed organizational practices -- institutions such as
research consortia -- that allow competitors to achieve common technical
goals before they compete with each other in the market Japanese firms
cooperate in consortia  at  every  level  of  the development cycle,
including basic research, systems development, and, especially in
aircraft, manufacturing.  While  the  form  and  function  of  these
consortia  vary,  every  government  program since the 1970's designed to
support technology development has provided incentives for additional
collaborative research.

                         The research consortia are just one of several
other "external" information networks through which technology is
exchanged, traded, or otherwise diffused among competitors in Japan.
These networks, coupled with public policies and private  practices
that  are  "de-localizing" Japanese research include joint ventures,
technology  exchange  agreements,  cross-licensing,  second sourcing,
production sharing, and a wide range of informal technology trading and
information sharing.  Industry associations, and regional  and
prefectural  manufacturer  "associations"  (kwniai) also provide
opportunities for specialty  equipment  or  components  vendors  and
subcontractors  to exchange technological information. As we will see,
efforts to stimulate multiple technology sharing relationships among
competitors are particularly pronounced in the aircraft industry.

                         An additional technology highway connects
suppliers and their customers.  It extends to (and indeed defines) the
vertical relationships among prime and sub-contractors and  facilitates
both upstream and downstream learning.  Japanese prime contractors have
been the principal conduit through which knowledge gleaned from licensed
production is diffused to supplier and vendors.  Typically, with each
new project, subcontractors will dispatch teams of engineers to  the
primes  for several weeks or months of training  to  master  design  or
manufacturing  techniques  imported  from abroad.  The primes will also
provide technical guidance on equipment purchases such as autoclaves,
new NC machinery, or specially composite materials technology.

                         There is also substantial bottom-up diffusion;
indeed, one of the dominant trends in Japanese manufacturing is the
increased role subcontractors play as specialists in applying technology
to foster new products.  As the subcontractors diversify into new
fields, or undertake independent R&D, they often learn unique techniques
or skills that they "spin-on" to their  old  lines of work.  This
knowledge is often transferred downstream in generic form as the
subcontractors become more involved in designing or manufacturing new
products in collaboration with other firms. Prime defense contractors
directly are responsible for only a fraction of their nominal
production.  The 1373 firms that the JDA lists as its suppliers are only
a small part of an  elaborate network of producers that have been
nurtured by a rapidly indigenized defense industrial capability. A
1987 survey by the Mitsubishi Research Institute found that reliance by
primes upon their subcontractors for defense production was already high
and growing. The volume of upstream and downs stream technology diffusion
differs among companies and industries; downstream transfer   may   be
comparatively   rare   in   Japanese   defense   manufacturing   given
the heavy  influence  of  licensed   production.   Nevertheless,   it
comprises   yet   another   mechanism   by which technologies flow
between companies in Japan.

                  C. Nurturing

                           The  third  strand  of  Japan's  technology
security   ideology,   nurturing,   is   concerned   with creating  the
conditions  under  which  domestic  firms  can   usefully   apply   and
retain   the   technical knowledge they obtain.  In Japanese thinking,
indigenization and diffusion is incomplete without a parallel effort to
support and sustain the producers that benefit from these processes.
Market shifts or technological revolutions can threaten long-term
manufacturing capabilities if industrial players -- firms, workers,
designers -- are not able to respond without threatening their very
survival.  It is therefore just as important to assure  that  networks
and  industrial  participants  survive  as  it  is  to obtain or develop
technology.  As one leading aerospace designer explains, "technology is
about more than 'know-how.' It also includes 'know-why' and 'know-who.'
One must nurture people and relationships  as  well.  Likewise,   a
Director of   Japan's   Aircraft   Technology   Association contends
that  Japanese  industrial  policy  is  about  "targeting  technology,
not  an industry.   We   are nurturing capabilities, not a sector.

                           Consistent  with  this  philosophy,  the
Japanese  have   constructed   an   elaborate   system   of protocols --
sometimes tacit  and  at  other  times  explicit  --  which  induce
domestic   firms,   even   as they  compete,  to  constantly  bargain
and negotiate   with   their   managerial   counterparts   and  with
Japanese  bureaucrats  to  share  market  jurisdiction  and  control.
These   protocols   --   sometimes   as simple as legitimacy afforded to
government advisory commissions or as complex as reciprocity accumulated
over decades of interaction -- force interests as varied as the largest
industrial producers,  small   subcontractors,   regional industry
associations,   local   and   national   bureaucrats, and financial
institutions to take account of each other's needs in shaping the
economy.  No single interest can ignore the others in making and
implementing industrial strategies; no one bureaucracy, multinational
firm, domestic industrial association or union can significantly
disadvantage the  others   through   unilateral   decision   making.

                           This system contrasts with American views
that collaboration is the same as collusion and that economic
competition is zero-sum. While U.S. economic bureaucrats have been
historically preoccupied  with  the  threat of  excessive  market
concentration,   their   Japanese   counterparts   have feared that
excessive competition may drive producers out of business that might
otherwise contribute  to  the  economy.  Bargaining  and  negotiation
protocols   help   ensure   that   business   cycles, differential
access to capital, cut throat regional development competition, or large
firm market power,  which  typically  generate  enormous  industrial
dislocation  in  other  countries,   are   mediated   so that even
"sick" players have a chance to recover, and none moves too far ahead of
the other.

                          Consequently,  small  and  large  producers in
Japan   share   the   pain   of   economic   downturns; capital is
allocated  across  the  board  to  talented  niche  producers  as  well
as  brand-name  corporations; and  regions  are  not  subject  to  huge
currents  of  investment  and  disinvestment  forcing   painful   social
adjustments that endanger skills and manufacturing know-how.  Options to
"exit" from the economy  are  made  less  attractive  than collaborative
strategies  that  progressively  build  the  skills  of individual
firms, regions, and the economy as a whole.  And when markets prove
irresistible and exit is unavoidable -- as in the case of Japan's  coal
mining  districts  in  the  1960s  -- the  state  and consumers  are
expected  to  bear  their  "fair  share"  of  the  costs involved  in
restructuring  regions  or industries.  In February 1992, for instance,
the government announced its ninth coal "nationalization" program  to
help   mining   firms   and   miners   adjust.   Throughout this
three-decade long  process,  the  potentially  precipitous decline  of
Japan's  coal   industry was   cushioned   towards   a "soft  landing."
In  the  process,  rather  than  simply  dislocating thousands  of
workers   and   destroying the industry, coal mining was transformed in
Japan from an extractive to a higher value-added processing industry.

                          Japanese  nurturing  strategies  encompass the
public,  private,  tacit  and  explicit  bargains   that undergird the
whole  economy.  Indeed,  unlike  the  U.S.,  military  production is
so   embedded   in   the commercial economy in Japan that it is
impossible to distinguish between support strategies applicable  only to
military  or  defense  manufacturing.   Nevertheless,   in   several
instances,   Japanese nurturing has had especially clear effects on the
nation's defense capabilities.

                          One is the creation of geographical regions
where arms manufacturing knowledge is systematically  strengthened  and
then  retained   over   time.   Unlike   many   American   regions, such
as the rust  belt  generally,  or  Detroit  in  particular, Japanese
industrial  regions  are  "sticky;"  once  capital and  technology flow
into  a  region,  they  almost  never   flow out.   After design,
manufacturing   and financial links are forged between producers and
investors in specific industries, all of the participants exert
considerable effort to  keep  them  intact. In  lean  times,  to
diversify  their  options  or learn new skills, regional producers often
enter new industries, building relationships with new banks or firms.
But these relationships supplement, rather than destroy existing ties.
New regional networks are built on top of the old.

                        Consequently, Japanese regions can sustain whole
industries in "suspended animation;" like pictures burned into a
television screen, certain regional  capacities  may  dim  with changing
times, but they do not fade completely.  Later, they can flare again
into  sharp  definition  should circumstances permit.  As we shall see,
this process has been characteristic of the aircraft industry.
Immediately after the war, and then again in the late 1970s, Japanese
producers kept alive the country's aerospace options during severe
slumps by turning to other sectors while awaiting new military or
commercial opportunities.  In the immediate post-war period, aircraft
industry inter-corporate links were preserved for close to a decade and
a half without significant production.  Then, as defense orders
blossomed in the early 1960s, and commercial subcontracting expanded in
the 1980s, the same  firms and  personnel  successfully  resuscitated
Japanese  aircraft  production.  Regional production skill development
in Japan is cumulative, rather than disjunctive as is often the case in
America.

                        As we will see, this strategy has been crucial
in  developing  Japan's  defense  industries.  Japanese military
manufacturing has been limited by comparatively low, cyclical military
expenditures.  But as the country's defense was sustained by regional
producers, aircraft, tank or warship builders minimized the  potential
loss  of  accumulated  know-how  and  skills  during  lean times, and
could more readily meet the nation's procurement requirements as
conditions changed for the better. Not incidentally, they were also
positioned to further enhance  their  capabilities through imports of
foreign technologies or commercial R&D.

                        Horizontal and vertical relationships between
firms also nurture long term stability and skill retention by preventing
debilitating intercorporate struggles for power.  On the horizontal
dimension (as we will describe below in the case of aircraft) Japan's
defense  industry  has  been shaped by collaborative arrangements
between the largest firms which ensure that each participates in at
least a piece of every major project. Substantial market consolidations
that would force many military production participants out of the
industry -- typical in other countries --  rarely  occurs.  Rather,
historical players, and occasional new entrants, are able to share in
learning and applying defense related technology.

                        Similarly, primes and subcontractors have
developed relationships that enhance skill retention by reducing the
kinds of intercorporate exploitation that frequently threatens the
existence of smaller producers in many other countries.  Unlike, in the
U.S., Japanese primes do not use their subcontractors as shock absorbers
when  the  economy  sours. Indeed,  when  asked  if  they do, Japanese
defense production managers  often  express  genuine surprise  that
prime  contractors  in other countries could, or would want to treat
their suppliers in this fashion. Conversely, representatives of U.S.
primes and defense subcontractors  are  usually puzzled  that  the
Japanese would not take advantage of their suppliers to cushion
themselves from market shocks. The dense local, regional, national
political and industrial networks that shape how firms are vertically
organized in Japan does not facilitate the "cut and run" strategies
typical in the United States.  Rather, Japanese primes and
subcontractors share market pain and grow together during economic
upturns.  The result is that the country's defense suppliers are better
able to retain their military production skills, and can more easily
experiment over the long term with spin-ons and spin-offs involving
commercial and defense applications.

                         -------------------------

                        Japanese beliefs about the strategic
contributions of technology to national security have therefore
generated a national commitment to indigenizing technology, diffusing it
throughout the economy, and nurturing firms that could benefit from
indigenization and diffusion.  Pursued separately and measured in
conventional economic terms, each has effects that can be costly and
inefficient.  Pursued jointly and understood in their ideological
context, these principles have led to industrial strength and national
security.  Indeed, they have helped create a defense industry -- if not
an entire economy -- organized differently than is typical in America.
Industries are valued as much for the knowledge that they provide as for
the products they can make.  Relations between industrial players are
guided less by price considerations than by the desire to continuously
amass and apply knowledge over the long-term.

                       Nothing about Japanese strategies, however,
reflects cultural peculiarities; non-Japanese thinkers such as Joseph
Schumpeter and Friederich List have put forth ideas that coincide
closely with the country's technology and security ideology.
Schumpeter's claim that technology is the central component of economic
competitiveness resonates throughout Japanese economic practice. So does
Friederich List's argument that a nation's independence and security
depends on the independence and vitality of its manufacturers. Japanese
industrialists, security planners, and policy makers have been more
informed by Schumpeter's belief in the centrality of technology and
List's belief in the importance of domestic industrial and technological
capabilities, than have their counterparts in America and other nations
where different principles were widely adopted.  Autonomy, diffusion,
and nurturing, the core values of Japan's technology ideology, may not
be uniquely Japanese, but Japan combined them in a novel fashion to
generate unique industrial practices, public policies, and criteria
measuring the success of an entire industry.  Japan is demonstrating
that a nation may have less need for an explicit "technology strategy"
if it embraces ideology that holds technology to be strategic.  This is
nowhere more apparent than in the case of the Japanese aircraft
industry.

[See file "mitjp921.a" for other portions of this report]
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