Issues Facing the Japanese Economy in 2012 (January 2012)

Science, Technology, and Innovation (STI) and Intergenerational Issues

AOKI Reiko
Faculty Fellow, RIETI

There is national consensus that the Great East Japan Earthquake, the low birthrate, and the aging population are the great challenges that the country faces. It is also understood that an economy underpinned by advanced science, technology, and innovation will be essential for overcoming the challenges posed by the earthquake and tsunami and enabling Japan—one of the leaders among developed countries in low birthrates and aging populations—to maintain one of the highest standards of living in the world.

One issue that has been receiving a lot of attention is pension reform, which is naturally framed as an intergenerational resource allocation issue. However, science, technology, and innovation (STI) policy is also an intergenerational resource allocation problem. Needless to say, its role as an investment in the future is important, but the difficult yet essential task is to achieve intergenerational transfer of technology. While government policies such as public education and assistance with child rearing are also investments in the future, together with other policies such as pensions and medical care for the elderly, and result in intergenerational resource reallocation, there is no one single policy framework or government institution that coordinates them as intergenerational resource allocation. On the other hand, STI policy is a well defined single policy that has intergenerational implications.

Moreover, while products such as smartphones and rockets are what are often regarded as the fruits of STI, such products are physical embodiments of human thinking and ability. Innovation requires upgrading of both physical facilities and human resources for research and production. There are only two ways to update human resources: either change the way people think or employ new people. In other words, an intergenerational transfer of both knowledge and people needs to occur.

4th Science and Technology Basic Plan

Here, only some of the aspects of the 4th Science and Technology Basic Plan will be discussed. For an overview, please see the outline, summary, or full text of the plan at (Japanese language only). The plan covers the five-year period from fiscal 2011, and the initial draft plan was put together at the beginning of March 2011. However, the Great East Japan Earthquake soon afterwards left numerous issues to be addressed. The plan was therefore revised and the final version was completed in August.

The 3rd Science and Technology Basic Plan focused on investment in four priority fields and four fields to be promoted, such as nanotechnology/nanomaterials and manufacturing technology. It followed a supply-push approach whereby society and the economy would be developed by creating technology in leading-edge global fields or fields in which Japan was preeminent. The 4th Plan, however, adopts a demand-pull approach, comprised of goal-oriented themes for the improvement of living standards and revitalization of the economy. The initial key themes were green innovation, life innovation, and system reform for promoting STI. After March, reconstruction following the earthquake and tsunami was added as a fourth key objective.

Another characteristic of the 4th Plan is the use of the term STI, making innovation an explicit policy objective. The possibility of using the term "science and technology" instead of "science-based technology" (a unique Japanese concept that excludes the social sciences) was explored during the formulation process, following the recommendation from the Japan Science Council. System reform was positioned as a key theme because a technology being leading edge or unique is neither a necessary nor sufficient condition for achieving innovation that will benefit society (i.e. improving social welfare). Social sciences are expected to contribute to successful innovation based on scientific knowledge and technology.

Systems and institutions for achieving intergenerational transfer

STI requires systems and institutions for producing new human resources and ideas, i.e., promoting intergenerational transfer. As part of system reform, there are plans to establish a Science and Technology Innovation Strategy Council (tentative name) to gather opinions and improve decision making process. The biggest task of the council will be to select science and technology for keeping Japan strong. With human resources declining due to the falling population, and the huge resources required for reconstruction following the earthquake and tsunami, including implementation of a new energy policy, it is unreasonable to continue to maintain all science and technology (horizontally) from upstream to downstream (vertically). Unless resources are targeted at selected fields, all fields will inevitably suffer from a shortage of resources. Simply imitating system reform that has been carried out in other countries will not be enough given Japan's status as a world leader in low birthrates and aging populations and its need to rebuild following an earthquake and tsunami of unprecedented scale. Japan must be bold enough to design and deploy systems that are the first of their kind in human history.

The 4th Plan also calls for the implementation of a standardization strategy for fields such as next-generation transportation systems and smart grids. This will accompany standardization in the field of telecommunications, a policy that has been pursued in the past. What became clear to us during interviews we conducted concerning the MPEG standard for file compression technology was that the standard actually only covers decoding technology. Specifications for encoding technology are determined by each company, so obviously there has been competition to improve the technology. In other words, MPEG is a platform based on a standard for decoding technology and is an example of a system for promoting intergenerational technology transfer. By leaving room for competition and specialization, the commoditization of products through standardization can be prevented. Therefore a successful standardization strategy should include a well thought out scope of standardization and property rights including intellectual property, before any coalitions for standardization are formed.

Expanding the tenure track system at universities and research institutes will be essential for securing stable employment for young researchers in the long term. At present, young researchers, who will lead the next generation of research, are being split into two groups, those with lifetime employment and those who go from one fixed-term contract to another (making them a type of "freeter" or non-permanent worker). This is because adjustments in staff numbers are made under a system that is based on the principle of lifetime employment. In the era when demand was expanding relative to supply, it was possible to maintain lifetime employment, and as is well known, the system worked well, for example, as a means of investing in human resources. Now that the supply-and-demand balance has changed, however, supply is being adjusted to meet demand through the use of a two-tier system comprised of lifetime employment and fixed-term employment. The possibility of delaying the start of lifetime employment for all staff has never been considered. Such an alternative will also reduce the risk of inefficiency from misallocation of talent from placing people with little research experience and outcomes. Moreover, with the exception of fields such as literature, for which proficiency in Japanese is essential, the advantages of employing a system for the Japanese market for researchers that is different from rest of the world are unclear. From the perspective of intergenerational transfer, the dichotomy in the employment status of the next generation of researchers may be producing a generation that is unable to consolidate and express its opinions and safeguard its interest, resulting in resources not being invested in them. This is the greatest concern for the future of Japan.

December 28, 2011

December 28, 2011

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