Academic journal article Journal of International Affairs

The Path Transformed: Redefining Japan's Role in the Information Economy

Academic journal article Journal of International Affairs

The Path Transformed: Redefining Japan's Role in the Information Economy

Article excerpt

The global economic environment has entered a new era in terms of scope, speed, mobility and incentive. The lowering of national barriers is increasingly clear in the areas of trade, travel and finance, just to name a few. What is less apparent are the changes occurring in scientific research and technological development. While costs continue to skyrocket, computing and telecommunications technology are making possible new forms of cooperation heretofore unimagined, requiring a fundamentally new approach in the science and technology arenas.

For a number of reasons, it appears that Japan has not yet come to grips with these changes. Should it continue on its present path, Japan will not only fall behind in the daily struggle for economic growth, but will also fail to live up to its full potential as a leading engine for scientific research and technological development, with regrettable worldwide consequences.


Today's global economy is increasingly technology-driven. In the 1970s, technology contributed only 20 percent to Japan's national growth rate. Between 1980 and 1985, this share grew to 40 percent, representing 1.8 percent of the country's annual average growth rate of 3.8 percent. Technology's contribution peaked between 1986 and 1990, reaching 60 percent of economic growth, or 2.7 percent of Japan's 4.7 percent annual GDP average.(1)

Buttressing this increasing reliance on technology were substantial outlays for research and development (R&D). Japan's R&D expenditures grew 12.3 percent annually from 1975 to 1980, 11.6 percent from 1980 to 1985, and 8.3 percent from 1985 to 1990.(2) Notwithstanding the gradual slowdown in this pace, the overall dramatic increase in R&D expenditures during the fifteen-year period provides an important backdrop for these technological advances. In fact, with the contributions of labor and capital decreasing over the years, one could argue that technological progress was the key component of Japan's economic growth.

To a certain degree, circumstances conspired to force Japan's preoccupation with technological advances. Being a resource-poor country, Japan has needed to concentrate more than others on conservation and efficiency, a point which was driven home by the oil crises of the 1970s. Ironically, the crises freed Japan from the old belief that it was impossible for the world economy to grow without an abundance of natural resources and energy. Accepting the technological challenge, Japan reduced its consumption of oil from 9 billion barrels of oil per 1 trillion yen of GDP in 1973 to 4.5 billion barrels per 1 trillion yen of GDP in 1990.(3) The dramatic rise of the yen following the Plaza Accord in 1986 had a similar stimulus on Japan's efforts to use technology to stretch output per unit of resource. As a result, Japan became, comparatively speaking, an extremely low resource-consuming nation, a key factor behind its strong economic growth through 1990.

The bursting of the speculative "Bubble" in 1992 brought with it a shift in strategy for many Japanese corporations. Falling revenues forced many companies to curtail R&D spending growth: after growing so quickly in earlier years, the annual growth rate of R&D expenditures fell steadily between 1990 and 1995, reaching only 1.8 percent.(4) At the same time, a trend has appeared of companies focusing research on a limited number of strategic areas in order to maximize the eventual return on R&D investment.

During this period, capital investment by Japan's private sector in information technology (IT) has grown rapidly, and now exceeds 25 percent of total capital investment. By the end of the century, this share is predicted to represent more than 40 percent.(5)

While these two trends are not directly related, I believe this shift in emphasis from R&D to IT represents a recognition by Japanese corporations of the growing importance of information and telecommunications for all industries. …

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