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Suggested Citation:"1 Introduction." National Research Council. 1997. Maximizing U.S. Interests in Science and Technology Relations with Japan. Washington, DC: The National Academies Press. doi: 10.17226/5850.



More than a decade ago, long-standing negative trends in the competitiveness of U.S. industry and the U.S. economy became the focus of widespread concern and debate. 1 By the early 1980s, a decline in U.S. macro-and microeconomic performance relative to our major trading partners—a decline steeper than what might have been expected from normal catching up by other countries—had become apparent. The macroeconomic problems included stagnant growth in productivity and overall output and a growing merchandise trade deficit. On the microeconomic side, American companies and industries that had once led the world experienced significant erosion of domestic market share by imports, resulting in plant closings, layoffs, and demands for trade protection.

The comforting belief that the United States could rely on its preeminence in high technology to fuel growth in new, high-value-added industries was shaken when the U.S. semiconductor industry suffered severe setbacks in the mid-1980s. It became clear that in the future leadership in scientific and technological research alone would not guarantee for the United States a leadership role in the commercialization of innovation or the lion's share of the wealth created by new technology-based industries. 2 The continuation of these negative trends held significant unattractive implications for American living standards, overall economic well-being, and national security.

To a large extent, the concerns and anxieties arising from the competitiveness problem were focused on Japan, both as the nation representing the most serious techno-industrial challenge and as a reference point for America's shortcomings. In nearly all of the major manufacturing industries where U.S. companies have experienced severe international competitive challenges textiles, steel, consumer electronics, automobiles, semiconductors, and machine tools—import competition came first and foremost from Japanese companies. 3 The U.S. merchandise trade deficit with Japan rose from less than $3 billion in 1975 to over $56 billion in 1987, the latter figure comprising over one-third of the record U.S. merchandise trade deficit of $152 billion for


For an early academic treatment, see John Zysman and Laura Tyson, eds., American Industry in International Competition (Ithaca, N.Y.: Cornell University Press, 1983). Growing interest and concern in the early 1980s culminated in the formation of a presidential commission to study the competitiveness problem. This group is widely referred to as the Young Commission after its chairman, John Young. See President's Commission on Industrial Competitiveness, Global Competition: The New Reality (Washington, D.C.: U.S. Government Printing Office, 1985). On p. 6 the report defines "competitiveness" as "the degree to which a nation can, under free and fair market conditions, produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens."


The Young Commission identified four areas of policy focus—technology, capital resources, human resources, and international trade. Ibid.


Except in a few cases, such as Airbus in commercial jet aircraft, the European challenge that was anticipated by some in the 1960s and 1970s has largely failed to materialize.

Suggested Citation:"1 Introduction." National Research Council. 1997. Maximizing U.S. Interests in Science and Technology Relations with Japan. Washington, DC: The National Academies Press. doi: 10.17226/5850.

that year. 4 Many U.S. manufacturing companies were hampered by outdated strategies, short time horizons, technological shortcomings in product development and production, business government antagonism, and other ills. 5

The Japanese economy and Japanese companies, on the other hand, were on a long and impressive winning streak. Possessing a highly skilled and cooperative work force and an effective government-industry partnership, including financial and regulatory structures, Japanese industry appeared to move from strength to strength during the 1970s and 1980s. Japan's major manufacturing industries became leading world exporters, with gains in the export of high-technology products originally developed in the United States especially conspicuous. Japanese companies were seen as embodiments of management skill and insight, and Japan's economic and industrial policymaking appeared to represent a superior model of government facilitated capitalist development. 6

Reflecting growing admiration and anxiety over Japan's advances in high-technology industries, the U.S.-Japan science and technology relationship began to attract increasing attention from U.S. policymakers and private-sector leaders in the mid-1980s. The focus sharpened on long-standing asymmetries in scientific and technological relations between the United States and Japan, particularly imbalances in technology flows and exchanges of scientific and engineering personnel. 7 Throughout most of the period from the end of World War II until the 1980s, the United States saw scientific and technological relations with Japan mainly as a means for deepening and improving political and human relations between the two countries—a nonproblematic aspect of overall foreign policy. Indeed, this is how the United States has traditionally handled scientific and technological exchanges with other friendly nations. 8 The U.S. security alliance with Japan reinforced the linkage between science and technology relations and foreign policy goals. 9

Science and technology relations with Japan became linked to the competitiveness and trade debates in two related areas. First, Japan's growing prowess in high-technology industries and the example of effective Japanese utilization of technologies developed in the United States prompted suggestions that the U.S. private sector would benefit from monitoring and assimilating technological and managerial developments in Japan and that government might encourage such efforts. 10 A second area of focus emerged from the realization that U.S.-developed technologies


U.S. Bureau of the Census data. The last year in which the United States ran a merchandise trade surplus was 1975. The trade deficit with Japan reached $65 billion in 1994.


Michael L. Dertouzos, Richard K. Lester, Robert M. Solow, and the MIT Commission on Industrial Productivity, Made in America: Regaining the Productive Edge (Cambridge, Mass.: MIT Press, 1989).


See James C. Abegglen and George Stalk, Kaisha: The Japanese Corporation (New York: Basic Books, 1985); Akio Morita with Edwin M. Reingold and Mitsuko Shimomura, Made in Japan: Akio Morita and Sony (New York: E.P. Dutton, 1986); and Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975 (Stanford, Calif: Stanford University Press, 1982).


These imbalances are described in more detail below. See also National Research Council, Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force (Washington, D.C.:

National Academy Press, 1995), particularly Chapter 3.


For example, the U.S.-Japan Cooperative Science Program was launched in 1961, and is the oldest international cooperative program in which the United States participates. As the first bilateral science and technology agreement, it set the pattern for utilizing science and technology as a foreign policy tool. See the United States-Japan Committee on Scientific Cooperation, Twenty-Year Report: 1961-1980 (Tokyo: Japan Society for the Promotion of Science, 1982).


See National Research Council, op. cit.


U.S. House of Representatives, Committee on Science and Technology, The Availability of Japanese Scientific and Technical Information in the United States (Washington, D.C.: U.S. Government Printing Office, 1984). The growing interest in Japanese science and technology in the early 1980s was reflected in the establishment of the Massachusetts Institute of Technology's Japan Program and other efforts to train American scientists and engineers in the Japanese language.

Suggested Citation:"1 Introduction." National Research Council. 1997. Maximizing U.S. Interests in Science and Technology Relations with Japan. Washington, DC: The National Academies Press. doi: 10.17226/5850.

that had been acquired and improved by Japanese industry over the years constituted a significant component of overall capability for a number of Japanese industries that were challenging U.S. leadership. In addition to emphasizing U.S. access to and utilization of Japanese technology, prospects for a continuation in lopsided science and technology relations between the two countries raised additional concerns among some about Japanese access to U.S. know-how and technology, particularly the trade-related impacts. 11 The balance of risks and benefits from continued open access to U.S. basic research was questioned.

That is the context in which this study was conceived and planned. The National Defense Authorization Act of 1992-1993 called for a comprehensive assessment of the U.S.-Japan science and technology relationship by the National Academy of Sciences. 12 In conducting the study the National Research Council's Committee on Japan organized the Competitiveness Task Force to examine U.S. economic and competitiveness interests at stake in the science and technology relationship with Japan. A parallel task force examining U.S. national security interests completed its report in 1995. The Committee on Japan integrated the two reports into a framework for maximizing U.S. interests. This "overview study" was undertaken with support from the Departments of Commerce, Defense, Energy, and State as well as the National Science Foundation.


As the Competitiveness Task Force was formed and started its work in early 1994, it was clear that many of the factors outlined above that contributed to the U.S.-Japan competitive and technological trends of the 1980s and early 1990s had shifted considerably. At this writing, although Japan has officially emerged from the post-bubble recession of 1992-1995, economic growth remains sluggish and appears vulnerable to the continuing drag of asset deflation and related problems in the financial system. 13

In addition, the strategic comeback that has been achieved by a number of U.S. companies in industries that have experienced tough competition from Japan—most notably semiconductors and automobiles—continues and appears to be based on substantive improvements in business performance, including manufacturing and technology commercialization, as well as differences in business cycles and currency fluctuations. Japanese companies have not yet made significant inroads in high-technology industries that had been the focus of Japanese government policies and corporate strategies during the 1980s, such as biopharmaceuticals. Japanese companies have not gained significant ground overall in the computer and software industries, despite persistent efforts and success in certain segments such as games software. Furthermore, Japanese companies are being challenged by Korean and other Asian companies in areas where they had established clear dominance, such as dynamic random-access memory, and Korean companies are gearing up to take on the Japanese companies that currently dominate flat panel display manufacturing.


The difficulties experienced by the U.S. semiconductor industry in the mid-1980s, and corresponding gains by Japanese industry, were particularly important in catalyzing these concerns. The revamping of the U.S.-Japan Science and Technology Agreement to include new oversight mechanisms, intellectual property provisions, and other features also reflected these trends. The agreement is covered in more detail in Chapter 4.


U.S. Senate, Committee on Armed Services, National Defense Authorization Act for Fiscal Years 1992 and 1993 (Washington, D.C.: U.S. Government Printing Office, 1991), pp. 173-174.


Since 1992, U.S. GDP has increased 22 percent, while Japan's has increased by only 6 percent. See The Economist, January 11, 1997, p. 19.

Suggested Citation:"1 Introduction." National Research Council. 1997. Maximizing U.S. Interests in Science and Technology Relations with Japan. Washington, DC: The National Academies Press. doi: 10.17226/5850.

Finally, the high-technology strategies of some Japanese companies and bureaucrats appear to be in disarray. Since the highly touted and effective Very Large Scale Integration collaborative research project of the late 1970s, there are no examples of Japanese technology policy initiatives that can be associated with subsequent gains by Japanese companies in international markets, while examples of expensive programs that have not met their stated goals are easy to cite, such as the Fifth Generation Computer project and some aspects of Japan's space program. 14 In November 1994 the Ministry of International Trade and Industry created a private-sector advisory panel to examine Japan's science and technology policies out of concern that current policies and programs will not be sufficient to ensure future Japanese competitiveness in high technology industries. The resulting report of this group, which represents a significant cross section of Japan's industrial and technological leadership, paints a sobering picture of Japanese innovation. 15 Japanese companies and the Japanese government are aggressively responding to these challenges, as will be described in more detail in other parts of the present report. Perhaps the most visible shift is Japan's new focus on strengthening fundamental science and engineering research through increased funding and changes in institutional structures. 16

The atmosphere has changed in the United States as well. Growing confidence on the part of U.S. industry is generally tempered by continued awareness of the need for vigilance in meeting the growing demands of the global marketplace. Recent administrations have launched a number of initiatives aimed at improving U.S. capabilities to develop and commercialize technologies. 17 A 1995 report on critical technologies, contrary to similar reports of the early 1990s, does not name any technologies in which the United States is lagging behind Japan or even Europe. 18 Some experts have asserted that the bilateral trade deficit with Japan will decline over the long term, and the focus of U.S. trade policy appears to be shifting to the rapidly growing deficit with China and other Asian countries. The strengthened position of U.S.-based companies, Japan's economic problems of recent years, and a growing interest in economic opportunities and challenges of other Asian markets have all contributed to "Japan fatigue" and less attention to Japan issues among U.S. companies, U.S. political leadership, and the public at large. 19


More material on the Fifth Generation program is presented in Chapter 2. Japan has two space programs. The National Space Development Agency (NASDA) manages such activities as the development and operation of launchers, participation in the international space station, and development of the Hope reentry vehicle. These activities are mainly funded by the Science and Technology Agency. Japan has sought to enter global markets in areas such as launching satellites but has realized only limited success thus far. NEC and other Japanese companies are already world leaders in the market for satellite ground stations. The Institute for Space and Astronautical Science (ISAS) is an interuniversity research program under the Ministry of Education, Science, and Culture. Much smaller than NASDA, ISAS focuses on space science and is seen as being very successful and cost effective.


See Sangyo Kozo Shingikai Sogo Bukai Sangyo Gijutsu Shoiinkai (Industrial Structure Advisory Committee, Industrial Technology Subcommittee) and Sangyo Gijutsu Shingikai Sogo Bukai Kikaku Iinkai (Industrial Technology Advisory Committee, Planning Subcommittee), Kagaku Gijutsu Sozo Rikkoku e no Michi o Kirihiraku Shiteki Shisan no Sozo, Katsuyo ni Mukete (Clearing a Path Toward a Nation Based on Creative Science and Technology; Toward Creating and Utilizing Intellectual Assets), June 1995.


Hidenao Nakagawa, Minister of State for Science and Technology, "Constructing a New Global Partnership—Science and Technology as an Investment for the Future," speech given at the U.S. National Academy of Sciences, Washington, D.C., August 8, 1996.


These are discussed in Chapter 3.


Is Office of Science and Technology Policy, National Critical Technologies Report (Washington, D.C.: U.S. Government Printing Office, 1995).


Thomas L. Friedman, "Japan Fatigue," The New York Times, January 11, 1995, p. A21.

Suggested Citation:"1 Introduction." National Research Council. 1997. Maximizing U.S. Interests in Science and Technology Relations with Japan. Washington, DC: The National Academies Press. doi: 10.17226/5850.


In preparing this report the Competitiveness Task Force focused on the links between the U.S.-Japan science and technology relationship and the most pressing priorities and concerns facing the U.S. economy. In considering the issues raised by debates over competitiveness in the 1980s and early 1990s and taking into account how conditions have changed, the task force is acutely aware that many U.S.-based companies and industries are responding to the challenge of global competition, some very effectively. Recognizing the ongoing debate among economists over the extent of recent productivity growth in the U.S. economy, the committee considers that the United States is doing at least as well on this front as other advanced industrial economies. 20

Although concerns over the management and technology development capabilities of U.S. companies and the ability of the U.S. economy to produce advances in productivity have subsided to some extent, the questions first raised in the 1980s over whether the United States could create and maintain high-paying, stable employment in an increasingly competitive global economy have reasserted themselves. The committee believes that this is the clearest challenge facing the United States—creating and maintaining an economy and enterprises that generate good jobs and a high standard of living over the long term by sustaining a well-funded and innovative science and technology base.

What do science and technology relations with Japan have to do with maintaining high value-added employment in the United States? The committee believes that both innovation and international relationships are linked to this broader concern. First, innovation is the most important factor in productivity growth, which is necessary for an economy to deliver growth in real incomes. 21 Second, innovation and technology development are increasingly global activities, and the United States is at the center of this globalization process. 22 Therefore, international scientific and technological relationships can be expected to have a significant impact on U.S. job creation and incomes. U.S. scientific and technological relations with Japan are worthy of particular focus because of Japan's status as a techno-industrial superpower, despite recent setbacks.

Also, the patterns and conflicts that have sometimes characterized the U.S.-Japan relationship may be repeated in science and technology relations with other countries focused on utilizing technology to sustain rapid economic development. U.S.-based manufacturing and service activities are increasingly dependent on overseas markets for future growth, but some companies are paying a high cost to access those markets, in terms of transferring production and technology. It is important that the lessons of past and current experiences with Japan be incorporated into public-and private-sector relations with other countries.

This report examines the U.S.-Japan relationship in science and technology with a view toward the larger economic developments the task force sees as desirable for the United States. The task force focused on two key sets of issues:

  1. Are there structural features of the US.-Japan relationship that affect the ability of the United States to produce and utilize innovation? How has the relationship changed in the recent past, and what do current trends indicate about the prospects for the future?


Council on Competitiveness, Competitiveness Index 1996: A Ten-Year Strategic Assessment (Washington, D.C.: Council on Competitiveness, October 1996).


See Council of Economic Advisers, Supporting Research and Development to Promote Economic Growth: The Federal Government's Role, October 1995.


U.S. Department of Commerce, Office of Technology Policy, Globalizing Industrial Research and Development, Office of Technology Policy, 1995 and Center for Strategic and International Studies (CSIS), Global Innovation/National Competitiveness (Washington, D.C.: CSIS, 1996).

    Suggested Citation:"1 Introduction." National Research Council. 1997. Maximizing U.S. Interests in Science and Technology Relations with Japan. Washington, DC: The National Academies Press. doi: 10.17226/5850.
    1. Are there lessons and insights to be drawn from the U.S. science and technology relationship with Japan with implications for how the United States—government, industry and research institutions—should approach international relationships in the future? How should the United States build science and technology links with key individual countries and regions, most importantly Japan but also including China and other emerging Asian economies? How should the United States approach such issues as multilateral harmonization of market and innovation systems in areas such as R&D subsidies, consortia, and intellectual property protection?

    With its focus on the conditions necessary to maintain high wage employment for U.S. citizens, the committee is putting its emphasis on the interests of Americans in their role as producers. Superior research and development, and effective utilization by companies that maintain significant capabilities to innovate and manufacture in the United States, whether they are based in the United States, Japan or elsewhere, are the necessary conditions. The task force recognizes that Americans have an additional stake in U.S.-Japan science and technology relations as consumers, although this linkage is not a major focus of the report. U.S. citizens derive benefits from Japanese innovation when they purchase Japanese high-technology products. U.S. consumers also benefit from competition in high-technology markets, which expands consumer choices and lowers prices over time.

    To chart a course for the future of the U.S.-Japan science and technology relationship that advances U.S. economic and competitiveness interests, it is necessary to understand Japanese and U.S. approaches to innovation; how these approaches have developed, particularly over the past four decades; and how U.S. and Japanese interactions in science and technology have been shaped by this historical context. Chapter 2 describes the institutional framework for innovation in Japan, including historical background. Chapter 3 provides similar background for the United States.

    Chapter 4 reviews the statistical and policy context for U.S.-Japan science and technology relationships and competitive trends. Chapter 5 reviews information gathered by the committee on U.S.-Japan science and technology relationships and competitiveness trends in several key industries. Chapter 6 outlines the committee's approach to defining U.S. economic and competitiveness interests in science and technology relations with Japan and contains a discussion of key issues and policy options for the United States. Chapter 7 presents the committee's conclusions and recommendations.

    Suggested Citation:"1 Introduction." National Research Council. 1997. Maximizing U.S. Interests in Science and Technology Relations with Japan. Washington, DC: The National Academies Press. doi: 10.17226/5850.
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    Suggested Citation:"1 Introduction." National Research Council. 1997. Maximizing U.S. Interests in Science and Technology Relations with Japan. Washington, DC: The National Academies Press. doi: 10.17226/5850.
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    Suggested Citation:"1 Introduction." National Research Council. 1997. Maximizing U.S. Interests in Science and Technology Relations with Japan. Washington, DC: The National Academies Press. doi: 10.17226/5850.
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    Suggested Citation:"1 Introduction." National Research Council. 1997. Maximizing U.S. Interests in Science and Technology Relations with Japan. Washington, DC: The National Academies Press. doi: 10.17226/5850.
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    Suggested Citation:"1 Introduction." National Research Council. 1997. Maximizing U.S. Interests in Science and Technology Relations with Japan. Washington, DC: The National Academies Press. doi: 10.17226/5850.
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    Suggested Citation:"1 Introduction." National Research Council. 1997. Maximizing U.S. Interests in Science and Technology Relations with Japan. Washington, DC: The National Academies Press. doi: 10.17226/5850.
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