K-ECONOMY-NATIONAL INNOVATION SYSTEM IN JAPAN

A national innovation system is the business, industrial, and policy conditions that support and
regulate the activities of those involved in innovation.

Early Industrialization
Modern industrialization in Japan began in earnest following the Meiji Restoration of 1867.
started efforts to catch up with the United States and Europe economically and technologically. It
hired a number of knowledgeable people from these countries, imported equipment, built
infrastructure and introduced social and legal frameworks. An engineering school named
Kogakuryo, which later became the Engineering Department of the University of Tokyo, was
established in 1873, only six years after the Restoration, and started to supply educated
engineers. Among the graduates of Kogakuryo were the founders of the present Toshiba and
NEC and among the graduates of the University of Tokyo were the founders of the present
Hitachi, Toyota Motor, and Nissan Motor. See Odagiri and Goto (1996) for the history of
these firms.

Postwar Trends
When World War II ended, Japan lagged behind the United States and Europe, partly because of
wartime isolation from scientific knowledge developed in these countries and partly because of
Japans heavy bias from the mid-1930s toward war-related industries, such as aircraft and
shipbuilding. In particular, there were a large number of skilled and experienced workers. With
these, the country resumed its efforts to catch up with the West. Japan actively imported
technologies, particularly during the 1950s and 1960s. Japan actively imported technologies,
particularly during the 1950s and 1960s. During most of this period, the government regulated
technology imports, which meant firms had to apply for the foreign exchange
to pay royalties. Without this regulation, technology imports might have been even
greater.
The Role of Universities and GRIs

Universities and GRIs also perform R&D. In 2001 47% of the governments R&D budget went
to universities and 42% to GRIs. GRIs were founded by national or local governments.
Agriculture has had the largest share of GRI researchers. Agency for Industry Science and
Technology was reorganized into the National Institute of Advanced Industrial Science and
Technology (AIST). The new AIST still gets the majority of its research funds from the
government but increasingly on a competitive basis. It also accepts an increasing proportion of
its funds from industries. Universities are, of course, major centers of basic research. In 2001,
universities accounted for 20% of national R&D expenditure, of which 62% was in physics,
engineering, agriculture, and health. In the university R&D of these four fields, 54% of the funds
were for basic research, compared to 15% for Japans total R&D in all fields had important
consequences for Japans national innovation system for at least two reasons.
First, reorganization of a national university, such as starting a new department, required
approval not only from the Ministry of Education, Culture and Sports but also financial backing
from the Ministry of Finance. This meant reorganization in response to emerging scientific fields
tended to lag. Second, all the faculty members of national universities were government
employees, and thus subject to the civil servant code. This made collaboration with the private
sector difficult. For instance, it was prohibited for a faculty member to assume a directorship of a
company or to teach on a part-time basis while working at a company. As the need for
university-industry collaboration came to be recognized in the 1990s, these regulations were
gradually lifted and, with the shift of formerly national universities to a semi-independent status
in 2004, the changes are expected to accelerate. Japans Completion of Catch-Up and the
Response of the United States By the 1980s, Japan has more or less caught up with the United
States and Europe. That Japans R&D-GDP ratio outweighed that of the United States for the
first time in 1987 and has been higher since then was a clear indication of this catch-up. This had
a number of consequences.