Five years ago, the Ministry of Economy started a project called, “The Industrial Cluster Program.” The goal of this project was to create clusters of universities and companies that interact intensively and facilitate the generation of innovative ideas. As the project drew to a close, the Ministry of Education, the Ministry of Economy, and Nihon-Keizai Shimbun Inc (literally, The Japan-Economics Paper; the Japanese equivalent of The Wall Street Journal) jointly held a final forum, “The National Forum of Intellectual and Industrial Clusters,” at “Tokyo Big Site,” on November 29th. I had just arrived at Narita airport from India that morning. After returning home to change my clothes, I hurried to the forum to give my presentation entitled, “Innovation”. The outline of my presentation was published in the Nikkei (Nihon-Keizai) Shimbun on December 25th.
The next challenge for Japan: How do we facilitate “innovation” in our society?
“Innovation” has become the key word for economic growth all over the world. In the European Union, in 2000, the European Council created the “Lisbon Strategy 2000” project, whose main objective was to deal with stagnant economic growth through innovation. Its final report, “Creating an Innovative Europe,” also known as the, “Aho report,” after the former Finish prime minister, was published in January 2006. In the United States, the innovation leader of 90s, The Council of Competitiveness (an NPO group that has significant influence over US trade and industrial policies) published a report called “US competitiveness 2001” and in 2004 released another report called “Innovative America”, also known as the, “Parmisano Report.” The report begins by declaring: "Innovation will be the single most important factor in determining America’s success through the 21st century." In Japan, Shinzou Abe, the new prime minister declared a long-term strategy called “innovation 25” in his first speech. I am the chairman of that strategy council.
There have been many innovations in our lives over the past decades. For example, in 1980, almost no one carried around a cell phone. Computers and Internet were restricted to a very limited number of users. These technologies had a significant influence on the structure of our society itself; therefore they are truly, “innovative.” I believe that true innovations have immense economic value and that they have the power to change the structure of our society.
To be truly innovative in that sense, to create something new with immense economic and social value to the people, we must ask ourselves what technology and service we need to make our society a better place. What do consumers and users really need? It takes a noble and pioneering spirit to keep the bigger picture in mind; our task is to create a society that will serve as a breeding ground for people with just such a spirit.
Being sensitive to the needs of people also helps us to cooperate with people in Asia and the world. Unfortunately, Japanese people are still somewhat closed off to the outside world, and do not care much about what people outside Japan might need. We have many advanced environmental technologies that could be useful in fast developing nations such as India or China if only we care to lend a hand.
More importantly, we need to foster talented individuals with leadership skills. Japanese universities have so far been rather parochial; faculty and students have little interaction with people outside of Japan, the curricula are not meant to train people to compete in a global market. Unfortunately, but not surprisingly, only about 10 Japanese universities rank among the top 200 in the world. Outstanding universities recruit and educate talented individuals, but Japanese universities have failed to attract talented individuals from outside of Japan.
Japanese traditionally excel at perfecting things, and we have produced some innovative products in the process. Our weakness, however, is that we are not good at grasping the bigger picture, i.e. creating a generalized idea from individual events and using that new idea to foresee how our society is going to progress. In order for Japan to compete in the global market, we need to keep our strong points while working to improve on our weak points by interacting with and learning from people outside Japan. We need to change the structure of our society so that the next generation will not have the weakness we have, and will be innovative in upcoming decades.
Mr. Tetsuya Iizuka, the chief executive of THine Electronics, gave a special talk after me. I had heard rumors about his passionate personality but had never had a chance to meet him. As I had expected, his talk was impressive and passionate. Here is the summary of his talk published in Nikkei Shimbun;
We need to revolutionize our universities and small venture businesses.
Big corporations on the one hand and universities and small venture businesses on the other should equally contribute to our technological advance. However, when we look at the Japanese industrial world today, it seems to me that one of those two driving forces is not working well; universities and small venture businesses are not functioning to their full capacities.
The Japanese government and people have always seen Japan as a technology-oriented nation. However, will this continue to be the case in the future? Some statistics reveal that over the decade between 1995 and 2005, the number of students who applied to engineering departments decreased by about 50%. Our slowing birthrate will further decrease the number of future engineers. The lack of engineers is starting to become a problem in the industrial world, and the situation will become serious if we don’t act now.
The major reasons that students avoid engineering departments, I think, are that they are losing their sense of hope about a career as an engineer, and that the turnover rate for Japanese small businesses is very high. It used to be different; Japan produced plenty of innovative engineers in the past. Today, talented Japanese baseball players get to transfer to American major league baseball teams and succeed globally, whereas there seems to be less hope for a young engineer to achieve such global success. Our governmental support system for new small businesses is far from perfect, and it is still very risky and difficult, even for talented individuals, to found venture companies.
I founded my company, Thine electronics, after I had worked in the semiconductor division of a large company. Our company is an IP firm that does not have its own factory, a style of company that became common in 1980’s in the US. However, because of this, some customers in Japan are hesitant to do business with us. In contrast it has become a well-accepted business model outside of Japan. Also, partially because of recent scandals involving venture businesses, some people think of venture businessmen as little more than unscrupulous worshippers of the almighty dollar.
In addition, Japanese culture is not forgiving of mistakes and that inhibits the growth of venture businesses. According to the “Statistics on business establishments and organizations” published by the Ministry of Internal Affairs and Communications, the growth rate of new enterprise between 2001 and 2004 was 3.5% whereas the rate of market exit was 6.1%. This is a very high number compared to other developed nations; in other words, our industrial world is also suffering a low birthrate.
We need to alleviate this harsh environment for new businesses. In the United States, research and development departments in big companies and universities/small ventures are both strong driving forces of innovation. We need to establish structural support in our industrial world that allows venture business owners to explore new ideas efficiently without first building large establishments with many employees. The activities of venture businesses are vital to the progress of our innovation.
The closing lecture was given by Mr. Masao Horiba, for whom I happen to have the utmost respect. (Unfortunately I had other commitments and could not listen to his talk). Nikkei Shimbun summarized his talk:
Cooperation between the industrial and academic worlds will activate low-tech fields.
The biggest challenge for Japan in the 21st century, I think, is to stimulate economic growth in the rural regions of Japan. There is no doubt that creating intellectual and industrial clusters will be the most effective solution to the problem. In doing so, innovation is the key.
So far, the definition of the word “innovation” has been unclear. Some use this term simply to describe new ideas while others say it defines ideas that can be eventually exploited as business seeds. Today, Mr. Kurokawa argued that, “We cannot call something truly innovative unless it has created a social value.” I agree and I think we should make his definition our standard and the goal for intellectual and industrial clusters.
In the panel discussion, people pointed out that our public demands results immediately, i.e. too soon. Ideally, intellectual and industrial clusters should foster the seeds of ideas that can grow into big businesses. The process of research and developments takes time; sometimes it takes more than 10 years for an initial idea to become an actual product. We should not give up on promising projects just because they take time to develop. On the other hand, we should not spend our tax revenue on projects that stagger along for decades without producing results. We need to make sure that projects are evaluated mid-term.
Last but not least, we always think about research and development in high-tech areas when we talk about academic-industrial alliances. I think however, that low-tech areas can also benefit from establishing such alliances.
(1) National forum of intellectual and industrial clusters
(2) Industrial cluster project
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