By James Pethokoukis

A few years back, I attended a discussion on US economic competitiveness. Several of the experts had been to this rodeo before. Back in the 1980s, they had been pushing for America to mimic Japan’s obviously (it seemed then) successful industrial policy. If America failed to abandon its more laissez-faire approach, they warned, Japan would surely become the planet’s dominant economic superpower.

It was a view hardly limited to Washington wonks back then. “Japan takes over the world” was a popular theme in movies and television back then, so much so that it has an entry at the TV Tropes website. As the site describes it, Hollywood in the 1980s and early 1990s frequently portrayed a world where America was distracted by the Cold War, and “Japan was quietly taking over the business sector with a seemingly inhuman affinity for technology and a hive-like dedication to work. It seemed that, no matter what we did, we’d all soon wind up working for the Japanese.” This trope can be seen in many films of the era such as Alien, Back to the Future II, Black Rain, Blade Runner, Die Hard, and Rising Sun.

Of course, things didn’t work out as predicted. Japan didn’t take over the world economically or otherwise. The boomy 1980s were followed by decades of stagnation, something reflected in Japan’s stock market. The Nikkei index hit a record 38,957 at the end of 1989 and only returned to the 30,000 level a few weeks ago. “Today, the [Japan takes over the world] trope has been replaced in the Western world with a preoccupation over China taking over the world,” notes TV Tropes.

More details on Japan’s troubles can be found in a Financial Times note by Leo Lewis, “Japan’s innovators seek their lost mojo.” The piece keys off the best-selling Japanese book Shin Nihon, or New Japan, by technologist Kazuto Ataka of Yahoo Japan. The book argues that Japan has a systemic problem turning research into innovative commercial products — and a turnaround needs to happen ASAP. Lewis:

Japan now has only one company, Toyota, in the world’s top 50 by market value. Once an innovative technology leader, the country is today far from being an instinctive, fearless challenger of boundaries. Three decades ago, 32 of the top 50 companies were Japanese. That slide coincides with the steady fall of Japanese universities through the global academic rankings and a worldwide decline in Japanese research paper citations from fourth place to 11th since 2000. 

The missing mojo is not irretrievable, Ataka argues. But its absence is painfully noticeable at a time when China, South Korea, Taiwan and other Asian countries seem to be leaning hard into a “fourth industrial revolution” driven by AI, molecular machines, big data and other technologies. Over the past two decades, Japan’s global share of patent awards has fallen from more than 30 per cent to 10 percent. Researchers last year found that the total planned $160bn R&D spending of just five US companies (Amazon, Facebook, Apple, Microsoft and Alphabet) was bigger than that of the whole of corporate Japan.

Tokyo believes there’s a problem and intends to fund riskier research as part of the solution — though Lewis is skeptical that response can be effective unless the government can “convince a nation of young researchers that they now live in an entirely new realm of funding. … An innovative society needs a permanent pool of people who are not only different from everyone else, but actively cherished for their desire to disrupt everything.”

Which brings us back to China. As suggested by TV Tropes, it’s tempting to swap out Japan for China — either to argue for mimicking China’s interventionist economic policy or to argue that its rapid economic gains will be soon smothered by too much government planning. And it’s tempting to opt for the former view when you note China’s recent success and you keep seeing headlines such as this one, “In battle with U.S., China to focus on 7 ‘frontier’ technologies from chips to brain-computer fusion.”

That said, I lean toward the latter (while also arguing the US should do more basic research and view tax and regulatory policy through the lens of innovation and entrepreneurship). I am skeptical about a prescriptive industrial policy to boost domestic manufacturing and about the long-term productive power of the Chinese economy. Here’s another headline for you: “Xi’s Push Against Jack Ma Sparks New Threat for China Tech.” Is an authoritarian surveillance state really a system where an ecology of creativity and risk-taking — both needed to push forward the frontier of scientific discovery, technological innovation, and business commercialization —  can flourish over the long term?

The post Does China have a Japanese economic future? Overlearning and underlearning from history appeared first on American Enterprise Institute – AEI.