Technology as an Intersection of Public Policy and Private Initiative: A case Study of Japan, the World’s Perpetual Technology Clock

Japan, the world’s technologically most advanced nation, has been buffeted by low growth and deflation for over two decades. During this period, the country has seen three-fold appreciation of its currency (Yen vis-à-vis US Dollar), rendering its products extremely pricey in overseas markets. The country has seen a huge real estate bubble that destroyed consumer and corporate wealth. The nation has aged significantly, potentially reducing domestic savings and consumption, and increasing welfare expenditure. The manufacturing industry faced onslaughts from the more nimble Korean industry and was burdened with excess capacity. Some of the high cost, big ticket overseas acquisitions affected the overall health of certain major conglomerates. The political system has faced continuous upheavals and the legislative processes have faced fractured verdicts during the period with a consequent impact on development economics.

Despite the above adverse trends, Japan retained its preeminent position as a global industrial leader, even two decades later. Japanese products, notably automobiles and electronics, continue to dominate global markets and customer mindshare, notwithstanding Yen appreciation. Japan continued to create new architectural marvels, albeit on a muted scale, despite the real estate slump. The industry continued to develop state-of-the-art products, several of them helpful to the aged population. The overseas expansion managed to weather the acquisition turmoil and deliver value. The political system remained durable enough to welcome a recharged Prime Minister Shinzo Abe and his strategy of Abenomics. At the core of this resilience lies technology, without doubt. This is evident as one considers the unfolding of new technologies in Japan for the future decades. Also at the core has been a public policy that was supportive of industry and technology.

Unstoppable in technology       

Prior to 1964 Tokyo Olympics, Japan started operating the Shinkansen bullet train between Tokyo and Osaka, completing the travel distance of 500 kms between the two cities in just 4 hours; since then Shinkansen reduced the travel time to two and a half hours. As Tokyo prepares to host the 2020 Olympics, Japan is preparing to showcase the world’s fastest train SCMaglev (superconducting magnetic levitation) super-bullet train, a hover train that will run at more than 500 kph and drastically cut the travel time between Tokyo and Osaka to just 67 minutes. Japan has been famous for its robotic technologies from the 1930s (Robot Lilliput was the first toy mechanical robot developed in 1932 in Japan). Since then, companies like Fanuc and Kawasaki, and a few others brought robotics to industrial manufacturing. Companies such as Sony and Honda brought humanoids to mimic human movements for day to day life. In 2013, Kirobo was developed as a humanoid robot that can accompany space astronauts. The expectation is that by 2020, robots that care for elders would be commercially available.

Self-driving cars are the new challenge and opportunity for the Japanese automobile industry which has mastered the energy-efficient hybrid car technology for mass production. Toyota and Nissan have pledged to develop self-driving cars for mass production by 2020. Applying technology in a delicate manner to human life is not strange to Japan. No wonder then that a Japanese rice maker has developed a rice polishing machine that removes the hard-to-digest bran but retains the delicate nutrition-rich subaleurone layer which is just 1/100 of a millimeter thick. While the Western firms dominate the global pharmaceutical industry, it is probably less known that some of the most potent and differentiated antibiotic drugs as well as cardiac, diabetic and gastro care were innovated in Japan. The same drive is evident in the research to use adult stem cells do the job of embryonic stem cells as induced pluripotent stem cells (iPSCs) to develop regenerative medicine that is free of controversies of embryonic stem cells and is more universally available. The amazing list of future technologies that are under development in Japan, certainly not limited to the above, is indicative of the unending quest of that nation for technological supremacy.

MITIoric Japan

What makes Japan tick with technological vision, investment commitment and execution commitment despite decades of economic deflation and political uncertainty? Forward looking government policies were often considered the facilitators of the Japanese miracle. In the post-war Japan, the famed Japanese Ministry of International Trade & Industry (rechristened as Ministry of Economy, Trade and Industry in 2001) was the facilitator of Japan’s unique industrial and export competitiveness. Decades of non-growth and industrial losses may have led to diminution of MITI’s relevance. The other answer also lies in the homogeneity of the Japanese society on one hand and the national acceptance of technology as the primary tool to improve quality of life on the other. Without the twin features of aligned public policy and private initiative, it would, for example, be impossible for a nation of the small scale of Japan to invest as much as USD 90 billion on SCMaglev super bullet trains with a 10 year investment horizon and an even longer and uncertain payback horizon. The social resolve to convert a challenge into an opportunity (for example, development of robots to take care of ageing population) also stems from a belief that technology can support rather than erode old world values.

The other feature is that Japan has always shown the wisdom and boldness to experiment with new technologies and open up new markets for new products first at home. This progressive approach has enabled Japan to master the new technologies prior to launching them with due customization abroad. The same quest makes for Japan’s high-tech toilets with a wide range of sensors and wash & dry mechanisms. At present, somewhat of a Japanese oddity, these can open new vistas in healthcare and sanitation, in a manner typically reflective of Japan – address and resolve problems at source. In several cases, the presence of several strong competitors for the domestic market also forced the Japanese manufacturers to master the art of technological parity with cost competitiveness. The differences in technological competitiveness and cost efficiency between the largest firm and the smallest firm are but marginal in Japan as contrasted with other nations where such differences across the industrial spectrum tend to be huge, and influenced by scale economics and resource accessibility. This means that a technology, once discovered or applied, becomes a national comparative advantage in Japan.

Abenomics, the three arrows

There is, of course, no denying that positive governmental policies help technological innovation and industrial growth. The miracle with Japan is that despite the fractured electoral verdicts, confused government policies and stagnant growth, technology continued to prosper. Japan has now a new hope in the new Abenomics which  refers to the new set of economic policy framework set in motion by Prime Minister Shinzo Abe upon assumption of office in December 2012. This comprises in his words “three arrows” of massive monitory easing, expansionary fiscal policy and long-term growth strategy. While the first and second arrows aim to transform Japan’s actual growth path, the third operates on the economy’s potential growth path, which assumes the optimal use of all available resources and technologies. With stock markets soaring by 40%, Yen depreciating by 20%, unemployment falling to 4%, real GDP growth increasing to 4% and job to applicant ratio nearing 1, the first arrow has decisively worked. The second arrow of sharp increase in fiscal expenditure for newer high-technology infrastructure projects takes longer to work but the projects of solar power and high speed transportation are signals that the second arrow would also work. The third arrow which aims to boost Japan’s potential growth through structural change in industry and business through techno-economic factors will become far more important.

Abe has set out the vision behind his long-term growth plan. “Japan is a country that challenges, that is open, and that innovates,” he says. The third aspect of his policy includes increased private investment, technological innovation, improved trade links, and reformed corporate-tax policy. The third component of Abenomics would depend on the pull factor from the infrastructure investments, acceleration of the intrinsic technological movement, industrial and technological collaboration between competing firms, and the investible resources that the private sector is enabled to develop. Apart from the new technologies discussed earlier, other frontier technologies such as metamaterial technologies, carbon capture technologies, magnetoresistive random access memory (MRAM), ultra-compact microwave communication systems, smart appliances, personal mobility vehicles, thorium and hydrogen technologies for nuclear power, 3D printer technologies, and several other new wave technologies are indicative of the potential that could lie ahead. Abenomocs faces the toughest challenge in ensuring that the technology led long term growth strategy is successful.

Transferonomics

India has a lot to learn from the progress of many advanced nations, not the least from Japan. As a late entrant to the world’s superpower game, India (now, expected to be the largest economic power in the world by 2028) has the benefit of absorbing the good points of several advanced nations. Japan has instructive lessons of positioning technology at the intersection of public policy and private initiative. Whether it is the efforts of MITI  and METI up to the recent times or the Abenomics in the contemporary times, public policy and private initiatives shared  technology, both as an outcome as a catalyst. Japan has been able to focus its top engineering and scientific talent on leading edge technology in Japan while outsourcing manufacturing around the world, utilizing scientific and technological resources abroad. China, Taiwan, Malaysia, Thailand and Indonesia have been great beneficiaries of Japan’s optimized global technology model. India, with scientific and technological capabilities, far greater than those of the nations in citation, except China, ought to have been in the vanguard of this optimization model.

Manmahonomics of the 2000’s was effective as a macroeconomic fiscal policy in India but recent events have demonstrated how lack of technological competitiveness and cost efficiencies can affect industrial growth, erode export competitiveness, reduce domestic capital formation, increase external debt dependence, trigger price inflation and affect overall economic growth. An alternative strategy should be to align private initiatives and public policy to position India as the leading absorber of global technologies and deliverer of products for the globe. Creation of a manufacturing base in India for the world is seen in some industrial sectors but needs a major scripting of strategy. Every new electronic device and most components of industrial equipment of the world whether from Japan or USA are manufactured in China from Day 1, in each case. India needs public policy and private initiatives that make such concurrent technology transfer to and product manufacturing in India possible. This requires encouragement of massive infrastructural investments (far beyond EoUs and SEZs), for example, creation of industrial cities with transportation and social infrastructure across the country and provision of clear policy regime for wholly owned and partially owned subsidiaries of technology giants. The policies should distinguish between companies which transfer aged products and companies which transfer the latest generation products, policies obviously favoring the latter. The criteria for evaluation should include not only investment inflows but the quantity and quality of technology inflows. The day when India can claim for itself the words Abe spoke of Japan as a country that challenges itself, that is open, and that innovates, the future of India shall remain successful and sustainable.

Posted by Dr CB Rao on December 29, 2013