A Half Century of Japan's Industrial Science and Technology Policy and the Agency of Industrial Science and Technology

In 1984, the Ministry of International Trade and Industry (MITI), the predecessor of the current Ministry of Economy, Trade and Industry (METI), began compiling the history of Japanese trade and industry policy spanning the period from the end of World War II through to the second oil shock in the mid-1970s. By 1994, the work had culminated in the publication of a 17-volume history. More than 20 years had lapsed since the end of the period covered in the previous work till the birth of METI in 2001 and calls grew for an analytical review and evaluation of trade and industry policy during this period. Against this backdrop, the Research Institute of Economy, Trade and Industry (RIETI) launched a project to compile a 12-volume history of Japanese trade and industry policy in the late 20th century. Compilation work, which began in fiscal 2006 (April 2006 through March 2007), is continuing in earnest under the leadership of Editor in Chief Konosuke Odaka, who is a professor emeritus at both Hitotsubashi University and Hosei University.

As a member of this project, I have been assigned to write under the title, "Industrial Science and Technology Policy" (Volume 9). In what follows, I would like to introduce some interesting facts from the history of Japan's postwar industrial science and technology policy and the Agency of Industrial Science and Technology spanning roughly half a century.

First, I will discuss three aspects that characterized Japan's industrial science and technology policy prior to the 1970s, which are: 1) changes in U.S. policy on science and technology development in occupied Japan and the birth of the Agency of Industrial Science and Technology; 2) Japan's attempt during the high-growth period to establish a national system for promoting joint research efforts modelled after the research association system in the United Kingdom, and 3) moves toward the construction of Tsukuba Science City.

Then, among various policy measures and initiatives implemented from the 1970s through the 1990s, a period covered by the ongoing compilation project, I will provide an overview of the following: 1) the Sunshine and Moonlight Programs that were launched against the backdrop of the oil shocks of the 1970s; 2) Japan's response to growing criticism in the 1980s of its free ride on basic research efforts in other countries; and 3) continuing efforts to find a new national innovation system for post-bubble Japan. And lastly, I will touch on some future challenges for Japan's industrial science and technology policy.

With the end of World War II in August 1945, Japan's national innovation system - composed of private sector companies, universities and technical colleges, and national and other public testing laboratories and research institutes - faced major challenges of military-civilian conversion. The General Headquarters of the Supreme Commander for the Allied Powers (GHQ/SCAP) not only ordered the dissolution of military and naval research organizations but also strictly prohibited military research by other research organizations including national and public testing laboratories, research institutes, and universities. Private-sector companies also found themselves compelled to convert their military-oriented research and development (R&D) efforts into those geared to peaceful purposes. Gijutsuin (the Cabinet's board of technology), which played a pivotal role in the wartime mobilization of science and technology, was abolished in September 1945.

Upon the commencement of the occupation, an investigation mission led by Karl T. Compton, president of Massachusetts Institute of Technology, conducted a comprehensive scientific intelligence survey of Japan (Compton Survey), with the exception of atomic bomb damages, so as to grasp the actual state and level of Japan's wartime military science and technology research. Survey findings were compiled into a five-volume report in November 1945. In the first volume of the report, the mission acknowledged that Japan had many competent scientists who, if only properly mobilized, could have made significant contribution to wartime scientific research. The report went on to say that Japan's wartime scientific research had nevertheless failed to make adequate progress because of the absence of an appropriate organization for promoting R&D activities and a total lack of cooperation from the military and naval forces.^*1

In addition to requiring research institutes to report on their research activities, the GHQ prohibited research in the areas of atomic physics and aeronautical science, while research into electronic technology required approval. At universities, any research institute or department that included "denshi" or "denpa" (meaning "electron" and "radio wave") in its name was renamed, with the term in question replaced by "denki" which refers to "electricity." However, from around the spring of 1946, the GHQ began shifting its policy on Japan's scientific research. Under the initiative of Harry C. Kelly, who headed a basic research group at the Scientific and Technical Division, Economic and Scientific Section (ESS/ST), the GHQ significantly loosened restrictions on scientific research activities in Japan, marking a significant about-face from strict prohibition to assistance aimed at promoting research activities for postwar reconstruction.

Based on the recognition that the weakness of Japan's scientific research lay in the absence of an appropriate organization for promoting R&D activities, or the problem of poor communication between individual research institutes, Kelly and his research team proposed measures designed to change that situation. This contributed to the birth of the Agency of Industrial Science and Technology (AIST), or Kogyo Gijutsucho as the agency was initially called in Japanese, in August 1948 as an extra-ministerial bureau of the Ministry of Commerce and Industry, the predecessor of MITI. Traditionally, testing laboratories and research institutes under the jurisdiction of the ministry had been each placed under a specific internal bureau in charge or the Minister's Secretariat. Under this organizational arrangement, inter-bureau coordination or inter-institutional collaboration was rather weak. To change this situation, AIST was established as an umbrella organization for 12 mining- or manufacturing-related testing laboratories and research institutes. In August 1952, the agency was renamed from Kogyo Gijutsucho to Kogyo Gijutsuin (English name remained unchanged) with its organization status modified from an extra-ministerial bureau to an agency affiliated with the Minister's Secretariat.

In making its budgetary requests for fiscal 1950, AIST identified nine priority areas of expenditures including: 1) expenditures on measures to improve the overall strengths of testing laboratories and research institutes; 2) expenditures for the establishment of testing laboratories and research institutes to engage in new areas of research; and 3) expenditures required to enable the vigorous implementation of pilot plant testing. Underlying this is the agency's assessment of the then existing state of affairs in science and technology as described below:

"The development of science and technology in Japan, after the brief initial period in which the government was the crucial driving force, had been characterized by a shift in emphasis from government-led research activities to those under private-sector initiative, with government policies inclined to be focused on those of a supplementary or service-rendering nature. This situation, however, has completely changed with the end of the war. With testing laboratories and research institutes in the private sector falling into deep decline, the government finds itself in a position where it is once again obligated to play leading as well as supporting roles to encourage technology development."^*2

AIST actively studied U.S. and European institutions as preferred examples of organizations engaged in R&D and new technology development. In the process, the research associations in the UK drew significant attention. Indeed, it was noted, "Given the current state of our country, it is necessary for companies, whether large or small, to cooperate in research. For this, the research association system in the UK serves as a good example."^*3 Then, after some twists and turns, the Act on the Mining and Manufacturing Technology Research Associations (Act No. 81 of 1961) was promulgated on May 6, 1961.

Mining and manufacturing technology research associations were initially counted on to serve as a vehicle for joint research between small and medium enterprises (SMEs). However, not a single such association was formed during the period from fiscal 1966 through 1969. The Japanese research association system was reactivated only in fiscal 1973, when AIST shed new light on research associations as vehicles for projects subsidized under the so-called Big Project program, a national program to subsidize large-scale industrial technology R&D projects launched in fiscal 1966. MITI had been offering various subsidies, for the purpose of assisting private-sector R&D activities, however, from fiscal 1967 onward, the amount of budget allocated for Big Projects far exceeded the amount of subsidies for mining and manufacturing technology testing and research activities.

As Japan entered into the high-growth period, many major companies moved to establish central research laboratories on their own in what has been referred to as the "first central research laboratory boom." As a result, the poor quality and deterioration of aging research facilities of national testing laboratories and research institutes emerged as a problem when compared to those of newly built private-sector research laboratories. Under such circumstances, the Cabinet gave its consent in October 1961 to individual ministries' plans to relocate their affiliated testing laboratories and research institutes outside Tokyo, following the Cabinet's decision the previous month on the relocation of certain government offices and establishments. In September 1963, the Cabinet agreed to construct an internationally comparable research and academic city in Tsukuba, Ibaraki Prefecture. In May 1970, a lawmaker-sponsored bill to construct Tsukuba Science City was passed into law. By the time the initial plan was completed in 1979, a total of 43 testing laboratories and research institutes affiliated with 10 government ministries and agencies were located in the new city.

In October 1973, the outbreak of the Yom Kippur War triggered the first oil shock. In August 1973, two months before the crisis hit, AIST determined the basic framework of what would later evolve into the Sunshine Program. Thus, the first oil shock came just at a time when specific deliberations were underway at the Industrial Technology Council, a MITI advisory body set up in July 1973, on ways of promoting the development of new energies.

The two oil shocks of the 1970s served as a sobering reminder of the vulnerability of the Japanese economy, which is heavily reliant on overseas natural resources. The sense of acute crisis became a driving force for the promotion of the Sunshine Program (R&D of new energy technologies) launched in 1974 and the Moonlight Program (R&D of energy saving technologies) launched in 1978. In 1976, MITI embarked on the so-called VLSI Program, a subsidy program to promote the development of very large-scale integrated (VLSI) circuits for next-generation computers, in a bid to compete with the Future Systems project, an R&D initiative launched by International Business Machines Corp. (IBM) to develop next-generation computers. The same year also saw the introduction of the National Research and Development Program for Medical and Welfare Apparatus, reflecting the growing interest in medical and welfare devices.

The 1980s was an era of U.S.-Japan frictions in trade and technology, prompted and fueled by a surge in Japan's trade surplus with the U.S. Fierce criticism arose in the U.S. against Japan for taking a free ride on basic research conducted in other countries. In response, Japan began emphasizing the need to contribute to the international community in a manner befitting a country that accounts for 10% of the world's gross domestic product (GDP). Japan's efforts to strengthen basic research activities were implemented in a variety of government programs and measures such as: 1) establishment of a national R&D program for key next-generation industrial technologies (hereinafter "Next-Generation R&D program") in 1981; 2) investments and financing of private-sector basic research initiatives starting in 1985; and 3) establishment of the Japan Key Technology Center in 1985. Furthermore, in 1988, the Act for Strengthening Infrastructure for Research and Development of Industrial Technologies (Act No. 33 of 1988) was enacted. In line with the new law, the New Energy Development Organization, or NEDO (established in 1980 as a quasi-governmental organization), set up an industrial technology department and was itself reorganized and renamed in 1988 as an incorporated administrative agency known as the New Energy and Industrial Technology Development Organization (the abbreviation of NEDO remained unchanged).

With this, the roles and responsibilities for national projects were clearly divided between MITI/AIST and NEDO, with the former concentrating on planning and the latter held responsible for operational management. In the 1980s, the focus of research activities at national research institutes in Tsukuba - those that had been relocated to the new science city - began shifting to the area of basic science. Meanwhile, the private-sector was going through the "second central research laboratory boom" against the backdrop of the long-term, robust economic growth in the later half of the 1980s. Despite the government's intention and policies to promote industry-academia-government collaboration in research activities, national research institutes and their private-sector counterparts often deviated from each other in reality. In a bid to ease technology friction with other countries, Japan promoted international research cooperation and, as one specific example of such efforts, proposed the Human Frontier Science Program (HFSP) in 1987. This Japan-initiated international research collaboration program aims to elucidate the mechanisms of living organisms and utilize the research findings for the benefit of all humankind.

In the 1990s, following the collapse of the bubble economy, Japan's national innovation system was called on to take a new leap forward as the nation faced severe economic difficulties. In fiscal 1993, the Industrial Science and Technology Frontier Program was launched by integrating three national project programs, namely, the Big Project program, the Next-Generation R&D program, and the National Research and Development Program for Medical and Welfare Apparatus. At the same time, the Sunshine Program and the Moonlight Program were also merged to become the New Sunshine Program. Meanwhile, in January 1993, four national research organizations - i.e. the National Chemical Laboratory for Industry, the Fermentation Research Institute, the Research Institute for Polymers and Textiles, and the Industrial Products Research Institute - were reorganized into two institutes, namely, the National Institute of Materials and Chemical Research and the National Institute of Bioscience and Human-Technology. At the same time, the National Institute for Advanced Interdisciplinary Research (NAIR) was established to undertake research encompassing multiple areas such as electronics, mechanics, and biosciences or in hybrid areas of various combinations of them. The underlying intention was to create an internationally appealing center of excellence (COE) for basic research as a response to the R&D free-ride criticism. At the same time, the establishment of the NAIR was based on recognition for the need to have a pilot organization that would serve as a place of experiment for new management schemes for national research institutes such as the fixed-term employment of researchers, the proactive appointment of external researchers, and performance evaluation by outside experts. The move was also in conformity with the changing attitudes of private-sector companies toward national research institutes. In stark contrast with the second half of the 1980s, Japanese companies backed away from their basic research efforts amid the deepening economic slump in the 1990s. Furthermore they were counting on national research institutes to continue basic research efforts and make up for the setback in private-sector efforts.

In the later half of the 1990s, while the Japanese economy remained stagnant and the problem of manufacturing exodus became serious, other countries were moving to strengthen industrial technology competitiveness, giving rise to a sense of crisis in Japan. This prompted the government to shift its emphasis away from international research and technology cooperation and to focus on measures designed to reexamine and strengthen the national innovation system. Specifically, the government vigorously sought to promote the development of new industries that would increase domestic employment, to achieve greater efficiency and ensure fair evaluation of R&D, and to enhance industry-academia collaboration and domestic technology transfers. Japan's industrial technology policy, which had been geared toward the research of basic sciences, was refocused on the development of technology for practical application. Against this backdrop, the Basic Act on Science and Technology (Act No. 130 of 1995; lawmaker-initiated legislation) was enacted in November 1995 and, in accordance with this, the Science and Technology Basic Plan was launched in June 1996.

The later half of the 1990s was a period of major changes in Japan's policymaking process. Prime Minister Ryutaro Hashimoto, who held office from January 1996 through July 1998, sought to eliminate bureaucratic compartmentalization, introducing a new mechanism for decision-making and policy implementation, in which important policy decisions would be made quickly under the strong leadership of the prime minister and all concerned ministries and agencies would be called on to make concerted efforts to achieve intended policy goals. Leading examples of achievements under the new mechanism include the Program for Economic Structural Reform and the resulting Action Plan for Economic Structural Reform, respectively decided by the Cabinet in December 1996 and May 1997, which highlighted the need to promote the creation of new industries. The policymaking process within MITI also changed irrevocably from the conventional bottom-up approach, in which various new policy ideas were proposed from individual divisions and sections, to a new approach that would first define the roles MITI should play in achieving - in collaboration with other ministries and agencies - specific government-wide goals, for instance, in order to facilitate the creation of new businesses in 15 key industries.

In 1998, the Act on the Promotion of Technology Transfer from Universities to Private Business Operators (Act No. 52 of 1998) was enacted. With this, universities, national colleges of technology, inter-university research institutes, and national research institutes began transferring their research findings to the private sector. Then, in 1999, the Act on Special Measures for Industrial Revitalization (Act No. 131 of 1999), often referred to as the Japanese version of the Bayh-Dole Act, was enacted to facilitate the transfer of patent rights - obtained through government-funded scientific research projects - to the private sector. Furthermore, the Industrial Technology Enhancement Act (Act No. 44 of 2000), enacted in April 2000, called for enhancing the nation's "industrial technology capability" and "technology management capability" as defined in the law and strengthening R&D networks of businesses, academia, and the government. As part of the central government reorganization in January 2001, AIST was reorganized as the National Institute of Advanced Industrial Science and Technology (new AIST). The new AIST, initially defined as an organization within METI, became an incorporated administrative agency in April 2001. In a move related to the government reorganization, the Industrial Technology Council, a MITI advisory body, was reorganized as the Industrial Science Technology Policy Committee under the Industrial Structure Council, a METI advisory body, in January 2001. At the same time, the Council for Science and Technology (CST) in the Prime Minister's Office became the Council for Science and Technology Policy (CSTP) in the Cabinet Office, a key policy council comparable to the Council on Economic and Fiscal Policy (CEFP).

For approximately 20 years in the late 20th century, MITI, in promoting R&D collaborations known as "national projects," explored how best to select research themes, how the teams should be composed, and how findings should be evaluated. The ministry, which had initially called for strengthening "basic research in the field of advanced science and technology and research designed to address universal challenges such as global environmental problems,"^*4 was forced to redirect its focus away from basic research to applied research under the prolonged economic stagnation. The pendulum, however, did not return to its original position. Over a period of time, the problems of the global environment, resources and energy, and food became more serious. Japan then found itself in a position to take the lead, along with the U.S. and the European Union, in exploring new R&D frontiers. As tomorrow's problems become today's problems, it has become increasingly difficult to draw a line between basic research and applied research, and international linkages in R&D have significantly deepened. To be able, as a frontrunner, to take the risk of uncertainty inherent to R&D, it is necessary to further deepen interactions with other parties, countries, or regions facing the same problems. Hope for the future of industry will only be found when industrial science and technology policy squarely addresses the universal challenges faced by all human beings. How can we provide occasions for individuals with different backgrounds to mingle and interact with each other, and how can we develop a mechanism to enable these individuals to utilize their collaborative research findings in their private R&D activities? Finding answers to these questions is one of major challenges that must be addressed by industrial science and technology policy.