Science and Technology Policy
Associate Professor MOTOHASHI, Kazuyuki

Quantitative Analysis of Japan s Industrial Competitiveness:
Innovation Policy Implications for Reforming Japan s Innovation System

Interviewer: Chiyoko Kanno, Communication Director, Strategic Research Base Promotion Ofﬁce̶̶ Would you talk about your research theme?

decreases. There is a capital contribution to economic growth.
Furthermore, the rest of economic growth can be explained by

The ultimate goal of my research is to develop ways to

Total Factor Productivity (TFP). In addition to labor and capital-

strengthen the competitiveness of Japanese industry, in

related factors, it is important to improve TFP. Particularly, theparticular information-technology-related industries. At

economic growth rates of advanced countries are inﬂuenced

present, there is a widely held view that Japanese electronics

by productivity. The results of a detailed analysis in this regard

and other major industries appear to be losing theircan be found in my recent book, "IT Inobeishon No Jisshocompetitive power. But is that really true? It is therefore

Bunseki (An Empirical Analysis of IT Innovation)*1."

necessary to analyze and assess the present situation properly.
If that is the case, the causes of these problems need to

W ha t is t he or igin of pro duc t i v i t y? I t 's innov a t ion . In

be investigated. From that, I will then proceed to the next

Japanese, we usually say "gijutsu kakushin," or technologicalstep, ie., of finding policy measures to solve the problem.

innovation. But innovation t ake s place not only inTo this end, a wide scope of analysis is needed on various

technological terms. For instance, the computer company

matters, such as our innovation system, including university-

Dell has established a unique supply system that provides

industry collaboration, and competition with China and otherits personal computers in a highly produc tive manner.

countries.

Another example is the Toyota system. These are examplesof organiz a tional innov a tion, which is di f f erent f rom

̶̶ I understand that, in the ﬁrst place, you make an accurate

technological innovation, such as the development ofassessment of the present situation based on data. As a result,new drugs and new semiconductor chips. Indeed, the real

if problems are found, you will seek solutions and eventually

meaning of innovation is to change something, not only

come up with relevant policy measures.

technological matters.

When assessing industrial performance, I give greatest

A New Trend: A Network-type Innovation
System through active Alliances andCollaboration

attention to an index of productivity. The scale of economic
activities can be represented by gross domestic product(GDP). Japan's real economic growth rate at present is said tobe around 2%. In the 1980s, the Japanese economy was very

̶̶Is the study of productivity part of the research on

strong, growing at a rate of over 4% annually. Then, going into

industrial competitiveness you mentioned earlier?

the second half of the 1990s, the pace of growth decelerated
considerably, to the 1% range. Such rapid deceleration has

Discussions about productivity fall into several categories.

led to a very symbolic view - the lowering competitivenessInnovation comes ﬁrst as a determining factor for productivityof Japanese industry. Looking at the economic growth

as I mentioned earlier looking at this in detail, there is

rate in detail, on the supply side, with Japan's decreasing

innovation based on research and development (R&D) being

population, we need to examine the impact of labor input

carried out by companies. This is technological nnovation.

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A company's R&D activities actually contribute to anneeds to be extended, not to mention increasing speed. A

improvement in its productivity, which in turn spreads overdevelopment system that satisﬁes such requirements cannot

the industry. My study first focuses on this point. Industries

be retained by a single company. This means that companies'

conducting vigorous R&D activities are called high-techresearch should focus on core areas and other activities

industries. For instance, in the pharmaceutical sector, theshould be entrusted to start-up businesses or universities.

ratio of R&D spending to sales reaches nearly 10%, or even

Collaboration with other companies may be feasible, too.

exceeds 10% in some companies. The ratio is also high in theThus, the form of R&D system will shift to a network-type one.

electronics industry, at 7% or 8%. A considerable amount of
R&D expenses are used in the industry as a whole. Companies

Another factor is the increasing importance of scientificin these industries spend R&D expenses to develop new

knowledge when a company makes an R&D investment. One

technologies. They are different from sectors that make capitalof the most typical areas in this regard is the biotechnology-

investments to build plants for producing goods.

based pharmaceutical sector. In RCAST, Professor Kodama is
engaged in research in this area. For instance, the sequence

What is particularly important today when consideringof human genes has now been decoded completely. Of about

relations between innovation and companies' R&D activities

20,000 genes, which genes relate to human diseases? Until

is that companies increasingly form networks with outside

recently, drugs had been developed by empirical methods.

parties, instead of doing all of such activities in-house. ThisFor example, microbes were taken from a tropical rain forest

trend is rapidly growing these days. Traditionally, Japaneseand they were given to mice. Nowadays, it is becoming

companies have engaged in R&D in-house. Large corporations'

possible to determine the root causes of certain diseases.

R&D expenses form a major proportion of overall R&D

Analysis of the structure of a protein that causes a disease

expenses in Japan. R&D expenses in the private sector in Japanand genome decoding had been a very academic form of

total some JPY12 trillion, of which the combined spending ofbasic research. But, as a result of such basic research, thethe top 10 companies in terms of R&D is around JPY4 trillion

mechanism that causes cancer has gradually been revealed. In

to JPY 5 trillion. That is to say, nearly half of the R&D expenses

consequence, the scope of R&D at pharmaceutical companies

in the private sector are spent by the top 10 companies.

has approached that found in university laboratories. If

For example, Toyota spends about JPY700 billion, while

university research produces speciﬁc results, pharmaceutical

Matsushita spends around JPY600 billion or so. In addition

companies can utilize the results to develop products. Thus,

to a handful of these large corporations, numerous small

university-industry collaboration has advanced remarkably

companies are also engaged in R&D using smaller budgets.

in this field. On the university side, knowing that their basic

Large companies have their own research laboratories, where

research can be applied for industrial purposes, researchers

they can perform basic research and product development.

have increasingly started venture businesses originating

However, this method is becoming less efficient these days

from universities. For pharmaceutical companies, with theand Japan's innovation system now needs to shift from one

importance of scientific knowledge growing during thewhere traditional large companies' have an in-house R&D

process of R&D, they started forming alliances with researchsystem to a network-type system, where collaborating withinstitutes. This move has begun to be seen not only in theuniversities, other companies, or start-up companies is used.

pharmaceutical industry but also in some electronics areas,

This is one such way of viewing the innovation system. I

such as semiconductor miniaturization technology and thestarted attempting an international comparison of this whendevelopment of devices, including liquid crystal and organic

I was at the "OECD*2" more than 5 years ago. This study has

electroluminescence (EL) displays, which have been studied

continued up to the present day.

extensively in universities.

How should we proceed with university-industry

These two factors have encouraged Japanese companies

collaboration? When companies' R&D activities wereto adopt a network-type innovation system. As a matter ofcompleted within their own innovation systems, they did notcourse, to form a network, a partner is needed. But a systemic

feel the need to work with universities so much. But in recent

problem has existed in Japan, that is, large companies haveyears, as shown in a survey report conducted by the Research

had self-contained R&D systems. This has discouraged people

Institute of Economy, Trade and Industry (RIETI) (2003 Survey

from launching start-up businesses. Furthermore, the low

on University Industry Collaboration), R&D competition

mobility of human resources has impeded researchers'

has heated up significantly. In the electronics industry inspinning out of universities. Having no opportunity toparticular, Japanese manufacturers dominated in the areas

exchange researchers between companies and universities,

of semiconductors, household appliances and liquid crystal

they have had no knowledge of what their counterparts

display components between the second half of the 1980s

are doing. Due to such circumstances, they cannot conduct

and the early 1990s. However, over recent years, competition

university-industry collaboration effectively. In addition

has grown in these areas from companies in South Korea,

to these human resource problems, there have also been

Taiwan and China . Japanese companies in the past gained

ﬁnancing problems. In Japan, banks have played a major role

proﬁts in a broad range of areas, but they are now in urgent

in ﬁnancing and they have not supplied money to businesses

need of extending to frontier areas of research as theirinvolving risk. Then, even if venture capital is established andshare is diminishing in less advanced technological areas.

the government has supplied funds, there are no personnel

Naturally, research competition is intensifying and latecomers

who are capable of making efﬁcient use of such funds. Thus,

are catching up with them at a rapid pace. So, the speed of

we need to cope with these problems related to humandevelopment is important. Furthermore, since the complexity

resources and financial resources, as well as patent matters,of research has increased in front-end ﬁelds, the scope of R&D

in a comprehensive manner to shift to a network-type2

environment. However, there are various restrictions in terms

years to their studies, rather than teaching. It would beof policy.

very meaningful to consider that the center can act as anintermediary between research capacities in the University

̶̶To sum up, Japan's innovation system is now in the processof Tokyo and that it provides opportunities to promoteof shifting to a network-type system in line with the changing

university-industry collaboration by using the whole of theneeds of the market, but there are restrictions in policy terms.

university's research resources.

It will be impossible to form networks leading to innovation
unless such restrictions are eliminated. We may be in a period

I've been here for only about one year, but my impression ofof transition at present. Are you going to study factors that

RCAST has not changed so much since joining the center. My

can break through the situation and facilitate change, thereby

research on university-industry collaboration places heavier

bringing about innovation in policy terms?

emphasis on companies than universities. So, I want to hearfrom RCAST members about the actual state of university-

A comparison of university-industry collaboration between

industry collaboration within the center as an example oflarge companies and small and medium-sized enterprises

such relations as viewed from the university. If there are any

shows that the latter have produced relatively successful

shortcomings, I'd like to come up with remedial measures,

results. It is certain that larger companies engage in basic,

including policy proposals.

high-level research. Since smaller firms are under severe
restrictions in terms of both human and financial resources,

̶̶Can we expect that RCAST will possibly become a model ofthey try to make good use of universities' technologies, having

university-industry collaboration? Japan today appears to beclear concepts from the outset. With regard to productivity

in a severe situation with regard to industrial competitiveness.

discussed earlier, the results of a survey show that small and

If industry-university collaboration advances, the situation

medium-sized enterprises, particularly R&D-type venture

will change and we may be able to see a brighter future.

businesses and younger companies, have achieved better
results from university-industry collaboration. Although large

How can we improve GDP? In other words, how can wecompanies are less restricted, they have greater difficulty infoster the competitive strength of Japanese companies so

accepting technologies from outside as they have their own

that they can gain proﬁts? When dealing with this challenge,

research units. They have sections handling licenses and if ascience and technology policies are very important in relation

technology is brought in from outside, internal researchers are

to productivity, as I mentioned earlier, but science andnot pleased with that. They are told, for instance, that in-house

technology policies alone are not sufﬁcient. It is increasingly

development is less expensive.

necessary to establish a right direction so as to reform Japan's
economic system, innovation system and the institutional

At present, discussion is taking place concerning university-

structure of the nation's economic system overall.

industry collaboration policies. Among such discussion, it ispossible that a system called a matching fund program will

In fact, science and technology policies are economic policies.

be instituted. Under this program, funds will be supplied

For instance, the mobilization of science and technology

to universities and companies on application for the

personnel has been incorporated into the Second Science anddevelopment and dissemination of technologies. If a special

Technology Basic Plan. But the plan covers only researchers

quota is set in the program to encourage collaborationin universities and national research institutes and it makes

between start-up businesses or small and medium-sized

no mention of companies. Whether or not we can see aenterprises and universities, better results from suchbright future is dependent on upon the innovative activities

collaboration can be expected. It is possible that smaller ﬁrms

of companies as a producer of new products. Universities

may become engines to promote network-type innovation

supply upstream knowledge, but they are incapable ofas they are different from large corporations, which tend to

producing output. This point must be taken into account whenbe self-contained. If this happens, that will be beneficial toconsidering the mobilization of human resources.

large companies as well, because more efﬁcient collaboration
can be expected with domestic start-up businesses having

What problems will arise when the mobilization of humanspecialized technologies than with those in Silicon Valley orresources takes place among universities, public researchother countries. There are research results verifying the effects

organizations and companies? For instance, the issues ofachieved by changing an entire innovation system using

pension portability and employment mobilization will arise.

econometric models. In fact, I have proposed this approach to

What is needed here is economic policy. As for financing

the Ministry of Economy, Trade and Industry and the Ministry

matters, changing the country's major financing methodof Education, Culture, Sports, Science and Technology(MEXT).

from direct ﬁnancing to indirect ﬁnancing should eventuallyfacilitate the launch of start-up businesses. Indeed, this is

Economic System Reform - The Key to the Promotion ofclosely related to what type of economic system Japan should

University-Industry-Government Collaboration

adopt.

̶̶Would you tell us about your objective view on the̶̶Do you mean that science and technology policies douniversity-industry collaboration underway at RCAST?

not work well unless basic matters in society are managed
effectively as a whole?

My understanding is that RCAST is the place provided tomembers of the Faculty of Engineering of the University of

I often use "innovation," rather than "science and technology."

Tokyo where they can devote themselves for around ten

Innovation covers all the processes up to product3

development, which leads to the production of practical

̶̶Would you talk about your plan for the period ahead?

products. Even if you make a great invention, you can't
make money if a product is not produced. Naturally, what is

As a science student by origin, since I entered METI I haveexpected of universities is not moneymaking alone. Rather,

striven to think over matters in a scientific manner. We may

they are expected to open up an academic frontier andhave a vague impression about various things. For instance,

contribute internationally by spreading knowledge to various

China is terrific; public investment should be made in theparts of the world, where knowledge spillover will take place.

information sector; and so forth. However, when allocating

Academia should make an academic contribution, rather thannational resources, figures must be given in the end. To

just pursuing profit. That's right. But when contemplating

calculate figures, in the first place, we need to analyze theJapan's bright future, what kind of role should universities

present condition using data. When the parameter changes,

play? At present, there is apprehension that Japan's industrial

how will the results change? For instance, if ¥100 billion

competitiveness is falling and it might even be possible thatis spent for university-industry collaboration, how much

Japanese industries will be defeated by Chinese counterparts

economic effect will it bring about? When talking about ¥20

sometime in the future. To respond to such an immediate

trillion to ¥30 trillion spending for science and technology,

problem, I will continue to think about ways to strengthen

discussion from an objective viewpoint on the basis of ﬁgures

Japan's industrial competitiveness and universities' position inis essential. I have consciously adopted such a way of thinking

that context.

since I entered the Ministry. As a ﬁrst step, I objectively analyze
the present situation on the basis of figures. Then, I comeLet us return to the question of whether we can expect aup with a speciﬁc policy in a quantitative manner. That is thebright future for Japan. My own view is that we do not needmethod I have followed.

to be over pessimistic about our future at all. Currently, I am
engaged in research on China. To examine that country's

It is becoming very important to handle micro data, or data on

potential, I have analyzed various science and technology-

individual companies and patents. This is a rather new topic

related data. So far, there is a considerable disparity between

being discussed among researchers. If there is a policy, theleading companies in China and their Japanese counterparts.

policy may not be beneﬁcial to all people. For instance, if small

However, considering China's very big market, an importantand medium-sized enterprises are to be treated favorably, thepoint is what strategy we should use to capture the market.

allocation of resources to larger companies must be reduced

A challenge for Japan is related to the open-type innovation

because national resources are limited. This policy may not

system. Japan's population is about 100 million, while China

please all companies. Companies are different by their typehas a population of over 1 billion. Japan's economic growthof business and size. There are well-established companies,

rate is only about 2% to 3% and its population is dropping,while there are also start-up businesses. There are companies'

while the Chinese market grows by 7% to 8% every year. Thus,

whose management is planning an international business

China has vast growth potential and the size of its market

strategy, while others are operating only domestically. Indeed,on the whole is far larger than that of Japan. In order to win

there are all kinds of companies. Therefore, we need dataover such an enormous market, it is essential to establish

at the company level when analyzing the present state ofgood relations with Chinese companies. In Japan, with the

distribution and when considering what type of companies

population decreasing and the number of children falling,should be targeted. Furthermore, such data is needed when

universities should face difﬁcult conditions from now on. Thus,

comparing policy options to determine what will be most

we need to map out our future from a strategic viewpoint,

effective for Japan and what can be adopted as policy.

including how to mobilize excellent human resources from
China.

Needless to say, policy can focus on a specific target area.
Therefore, assessment of the present situation on an industry-

̶̶To that end, should we establish a system to attract

by-industry basis is not adequate. For instance, it is insufﬁcient

excellent human resources to Japan?

to say that R&D expenses spent in the electrical machineryindustry totals ¥3 trillion. Instead, we should analyze more

Regrettably, promising persons who are expected to leaddetailed information. For example, the number of companies

science and technology in the future at the front end tend toengaged in electrical machinery-related business; kinds

go to the United States. Will Japanese companies be able toof operations they are engaged in; and the number o ftake the leadership in the world in the true sense of the wordcompanies engaged in each kind of operation. Then, a policyin the future? Japanese companies almost entirely dominate inshould be formulated based on micro data, or company-level

the consumer electronics sector at present, but manufacturers

data, taking into account the situation of the speciﬁc area atin South Korea and other countries are on their heels. Uniquewhich the policy aims..

IT-related ﬁrms are, for the most part, American companies.
The competitiveness of Japanese companies overall is

When making an analysis using such company-level micro

lower than that of their American counterparts. Should theydata, we need to handle a massive amount of data. Looking

cooperate with companies in China and other countries to

at Japanese patent data, for instance, Matsushita applies

have an edge over American rivals? This is an urgent problem

for over 10,000 patents every year. The company alone

for Japan.

has some 100,000 patents. Since Japanese patent data isextremely detailed micro data, which embodies the results

Observing Changes in the Innovation Process using Patentof technologies, they can be used for various research. I am

Databases

currently working together with Professor Akira Goto of RCAST
and other researchers to construct a database of all the patents

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ﬁled in Japan in and after the 1960s (about 9 million patents).
Using this patent database, I plan to carry out research on
changes in the innovation process in Japan. Also, we bought
Chinese patent data and the construction of a Chinese patent
database is in progress. All patent information is published
one and a half years after applications are received. Thus,
the question is whether the database of patent data can beconstructed. All U.S. patent data have been compiled as a
database and they are published on the website of the U.S.
Patent and Trademark Office so this data is easily accessible
to researchers. The European Patent Office (EPO) also offers
similar services. Various kinds of analysis will be possible bycollecting American, European, Japanese and Chinese data
into one database, including the international comparison ofcompetitiveness. I am so eager to release the results of myresearch in the future.

Links
RCAST
http://www.rcast.u-tokyo.ac.jp
Kazuyuki Motohashi Web Site
http://www.mo.rcast.u-tokyo.ac.jp/index-eng.html*1:IT Inobeishon No Jissho Bunseki (An Empirical Analysis of
IT Innovation):
http://www.rieti.go.jp/en/publications/archives/06.html=IT Inobeishon No Jissho Bunseki*2:OECD:
http://www.oecdtokyo.org/tokyo-lan/oecdtokyo-en.html=OECD5