Factors of production available to the Japanese economy are expected not to increase much in the 21st century. Therefore, the role of technological progress is important to sustain even a modest rate of economic growth. As it is difficult to expect a significant increase in R&D expenditure, we need to create an efficient innovation system.
A national innovation system comprises industry, university and government, and it can be seen as an outcome of the interaction of these three sectors. Japan's industry was highly competitive in the early 1980s, but it is lagging in such new areas as information technology and biotechnology. These technologies require firm and industrial organization which are consistent with their technological imperative. The reform of the university and its relationship with industry will be a key factor in creating an efficient innovation system in Japan. Government policy also needs a new approach to promote these technologies and industries.
