Economist Intelligence Unit: Japan the Most Innovative Country in the World

5 Responses to “Economist Intelligence Unit: Japan the Most Innovative Country in the World”

1. Adam Carstens on May 18th, 2007 12:05 pm

   Ken -

   How does this square with the IMD study showing Japan falling behind in “World Competitiveness”? Can one be both non-competitive and extremely innovative? I guess if the innovations are not worth anything…but that doesn’t strike me as the case. Any thoughts?

2. Ken Worsley on May 18th, 2007 10:33 pm

   Adam,

   Thanks for your comment. I’m not an authority on this, but here’s what I’m thinking…

   The seeming contradiction between the reports came to mind when I posted this one, but haven’t had any time to write about it. But I do have a few thoughts:

   First, I think it demonstrates that neither of these ‘rankings’ are infallible. They’re both looking at things that are very difficult to quantify, and are bound to be called into question. As one example, I had trouble believing that Estonia would rank above Japan in terms of global competitiveness. But, I’m not in a position to quibble over the rankings.

   I think there is certainly a gap in the rankings. I have a hard time believing that Japan is #1 in innovation, but it’s true that Japan has more patents filed each year than any other country. Japan also spends an immense amount of money on research and development, and has a huge number of scientific researchers in comparison to many other nations.

   But - and here’s where competitiveness comes in - much of that research is redundant. We know full well that in autos, shipbuilding, steel and electronics, Japan is highly competitive on the global level, and these industries tend to drive the innovation that goes on here. But exports account for maybe 16% of GDP.

   The domestic industries, and especially the services sector, suffer from notoriously low labor productivity and over-regulation. They are very protected by the government and thus face little in the way of global competition. Many firms in such industries thus have little need to innovate, since competition is limited, and often friendly due to cozy cross-holding of shares.

   When we look at the factors that hurt Japan in the global competitiveness ranking, it seems to make a bit more sense. Here’s a list:

   Japan’s high budget deficit
   High debt levels
   High corporate tax rates
   Expensive labor
   Entrepreneurship is not widespread
   Business managers are not characterized as having much international experience
   There is a low participation of women in business
   Non-effective implementation of auditing and accounting practices
   A national culture that is closed to foreign ideas
   Strict immigration laws

   In terms of innovations that drive the export industries, I don’t think any of these would be a hindrance. Innovation could go on in autos, electronics and so on while these anti-competitive factors continue to hurt the finance, restaurant and retail sectors.

   For example, it is true that entrepreneurship is not widespread. At the same time, we should consider that the overwhelming majority of patent applications come from large companies, not individuals. Having a patent approved in Japan can cost up to $20,000, and is thus not affordable for many individuals. Thus, we see large corporations receiving the greatest part of Japan’s patents each year. So, despite entrepreneurship not being widespread, innovation can happen - just in a different context - within that of the large corporation.

3. Mike T on May 19th, 2007 3:04 am

   Japan is more innovative than the United States? I’m not so sure about that. Maybe these guys are driving hybrids, listening to Walkmans and eating pizza with squid on it…

4. Thomas Calph on June 20th, 2007 11:51 pm

   Japan is definately more innovative than the united states. Sony is a
   great example of innovation such as the playstation 3, AIBO robot,
   Shinkansen 500 series and JR maglevs are just a few of Japans accomplishments
   to claim the title of the most innovative country in the world.
   It looks like it’s hard for some americans to accept that their not number one in everything
   and especially not with innovation.

5. Ken Worsley on June 21st, 2007 12:08 am

   It looks like it’s hard for some americans to accept that their not number one in everything
   and especially not with innovation.

   What “americans (sic)” are you talking about? I’m not sure what evidence you’re basing the last sentence of that comment on.

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