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EXECUTIVE SUMMARY 3 continued long-term growth in entitlement spending has negative implications for discretionary programs, including science and technology. In Japan, the government is said to be reducing industrial intervention. At the same time, it is increasing subsidies for research and development and continues to play a coordinating role in setting industrial policy. Also, a number of policy changes undertaken after the active portion of the Joint Task Force activity was completed reveal renewed determination on the part of the Japanese government to strengthen basic science. These changes include increased support for educational infrastructure in the supplemental budgets of recent years, as well as new and expanded programs of support for academic research by agencies other than the Ministry of Education, Science, Sports and Culture (Monbusho), such as the Science and Technology Agency (STA) and the Ministry of International Trade and Industry (MITI). In 1995, Japan passed a new Science and Technology Basic Law, and released its Science and Technology Basic Plan in July 1996. Two key elements of these initiatives are increased public support for science and technology, and systemic changes aimed at improving the environment for creative basic research.5 Encouragement of university-industry cooperation has also been a major issue, as seen in the establishment of the new Office for the Promotion of Academia-Industry Cooperation at MITI in 1995, and legislation drafted jointly by MITI and Monbusho in 1998. Continuing Fundamental Differences and Evidence Against Convergence Defense-Related R&D Spending Despite a long-term decline in the share of U.S. R&D efforts devoted to defense, defense will continue to play a major role in U.S. research and innovation, while Japan's defense R&D, although growing rapidly, continues to be relatively limited. Role of Universities Universities in the United States play a much greater role as performers of research and as partners with industry than do universities in Japan. Industry/Government Division of Responsibility Notwithstanding recent changes in Japanese policy outlined above, industry continues to be the predominant source of research and development funding in Japan. In the United States, due primarily to defense R&D, government funds a higher proportion of R&D than in Japan, although the proportion of U.S. R&D funded by industry has grown over the long-term. Labor-Market Practices The Japanese labor market is characterized by long-term employment, whereas the U.S. labor market is characterized by job mobility. These attributes lead to significant differences in corporate employee development practices, although the historic commitment to lifetime employment at some Japanese companies has given way in Japan to pressures from the recession, as it has in some U.S. companies such as IBM that were characterized by long-term employment until the 1990s.