Urgent Proposals for Japan's"Innovation 25 Strategic Council"

BUNROU　SHIOZAWA
TFormer Deputy Director-General of the Cabinet, Science & Technology Policy

MR. CTO, YOU ARE THE MAIN PLAYER IN THIS GAME

The concept of “innovation” is not necessarily limited to the changes that was or has been generated by scientific and technological advancement. However, the Japanese innovation policy has attached a particular importance on innovations triggered by new scientific findings and technical inventions, as we can see in the definition of “innovation” described in the third Basic Plan on the Science and Technology Policy(3). So, the Japanese government's innovation policy places its one of the main focuses on the promotion of the Japanese scientific research and technology development activities and on effective dissemination of their output so that they will lead to the generation of innovation in the Japanese economy and society in coming years.

Amount of monetary resources allocated to achieve a policy goal, such as the generation of innovation, can be one of the most popular indicators to weigh the power of driving force of the policy if not monetary input is an only measure to achieve the goal. The amount of annual budget of the Japanese science and technology policy is about 3.8 trillion yen. As well known, this covers only 20% of the total amount of money annually expended for scientific research and technology development in Japan. Other 80% of that is spent by the Japanese private sector, mainly (about 90%) by manufacturing industry. Less than 5% of the government money goes directly to the private sector. Even if we are to take into account the government money distributed to the private sector through independent research funding organizations, such as NEDO and JST, it is estimated that about 10-15%(4) of the government money is eventually used by the private sector. This 10-15% amount of the government science and technology budget only accounts for 2.5-3.75% of annual R&D expenditures spent by the private sector.

Although about 50% of the government money goes to the university, there is a little chance for the government to realize generation of innovation in the short term. Normally, it takes more than 20 years for a university born new scientific finding to become a new very innovative product or process, looking at the past experiences. Besides, the government does not and should not have any authority to guide research work to be carried out in the university

As clearly seen from those facts, what the government can do for the promotion of innovation in terms of the science and technology budget is quite limited. Furthermore, it would not be a realistic assumption that the science and technology budget will continue to increase under the present severe fiscal condition of the Japanese government in coming years.

Thus, the major actors expected to play in generating innovation in Japan in coming years are private companies. We really need to devise an innovation policy by which private companies will play a major role in this innovation games.

But, technology management practice being exercised in the Japanese private companies is evaluated as neither superior nor effective. “White Paper on the Japanese Economy and Fiscal Policy 2005” presented its analysis using relationship between the sum of 5 year-R&D expenditures and the sum of the 5 year-sales profits, and referring to the results of innovation study conducted both in Japan and in Europe(5). These analyses suggested that the Japanese companies' high-level monetary input to their R&D activities have not efficiently led to the increase of their sales or profits.

This is the reason, in my understanding, why the Japanese government, Ministry of Economy, Trade and Industry in particular, has been advocating the importance of management of technology. With this understanding, the ministry has been devising various policy measures, such as promoting industry-academia collaboration, encouraging strategic use of intellectual property rights and soliciting active participation in the international standardization activities, to mention a few. All those policy measures are relating to and aiming at the improvement of the technology management practices being exercised in the private companies.

But how many industry leaders have been closely following the government's innovation policy and recognized the necessity of reflecting on their technology management practices in view of improving them? Except for only handful industry leaders working closely with the government － this is not an ordinary attitude of industry people, though - or relying on the government purchase for their company sales, most of industry leaders do not even notice such government's concern, and therefore, do not understand the intention of the government innovation policy.

Therefore, the innovation policy that needs to be devised would be that aims at directly affecting technology management practices being employed in private companies as widely as possible. Such policy measures would include tax incentive for R&D activities and regulatory reforms. Japan has already introduced internationally competitive tax incentives for the promotion of R&D. And the legal framework and institutional setting for the protection and the handling of intellectual property right have substantially been improved in the past 5 years, thanks to the strong leadership exercised by the Intellectual Property Strategy Headquarters, Cabinet Secretariat.

Considering those past histories and the present status of the policy measures regarding technology management, the next policy target should be regulatory reforms or other measures which would change the business environment so as to produce substantial improvement in inefficient technology management practices spread and accumulated in the Japanese economy. Japan has still plenty of possibilities to fully make use of the potential innovation ability of private companies. Therefore, how many and how concrete such measures the government can identify in the new innovation policy package which is planned to be developed and published in coming May would be the key to measure the effectiveness and “innovativeness” of that policy.

To this end, we have to seriously ask ourselves that why many Japanese pharmaceutical companies tend to conduct clinical trials of a new drag in abroad, why the logistic company like United Parcel Service has been non-existent in Japan or why the company like Wal-Mart has been facing a hard fight in developing its business in Japan? At the same time, Chief Technology Officers of the Japanese companies have to seriously ask themselves that, “Am I managing technology owned and being generated in my company in really effective and strategic manner?”

Notes

(1)この原稿は、著者が書いた”Mr. CTO, You are the main player in this game”という英文のオリジナル原稿を著者自身で翻訳したもの。

(2)The former Deputy Director General for Science and Technology Policy, Cabinet Office.
* This paper does not represent a formal view nor opinion of the Japanese government by any means. This paper was written with sole personal responsibility of the author.

(3)The third Basic Plan on the Science and Technology Policy defines the “innovation” as “generating new social and economic values with advanced scientific findings and technical inventions combined with human insights,” p6, “Science and Technology Basic Plan (Revised provisional translation),” March 28, 2006, Government of Japan.

(4) This estimation was presented by METI. This figure includes not only the government money directly went to the private sector but that went to it through the public research funding organization like NEDO and JST.

(5)“Source of innovation and policy agenda for improving international competitiveness,” Section 4 of Chapter 3, “WHITE PAPER ON THE JAPANESE ECONOMY AND FISCAL POLICY 2005.”