滋賀大学学術情報リポジトリ

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SEED MONEY APPROACH

IN JAPANESE TECHNOLOGY POLICY

Gabor Bakos

As is widely known,the government's share of 20%in tOtal R&D expenditures(in the usA and Germany 36-36%,in France 45%)and about l.5%to industrial R&D expenditures is the lowest among western countries, while governmental guidance is the most comprehensive and po、verful in Japan. HoW is it possible、vith such a small money to exert such a great influenceP For this enigma the“seed money"approach provides an explana‐ tion.

Seed money means that the government with relatively small money

i n i t i a t e s R & D p r o j e c t s w h i c h w o u l d o t h e r w i s e b e t o o r i s k y f o r p r i v a t e companies and hence they refrain from starting them. Given the starting

push,companies join with their own capital contribution.Later,the project is carried on by the companies.The positive consequence is,that ensuing Rさ乾E)results will soon be introduced by companies into production,1.e.the commercialization phase is shorter and more efficient.

I Japanese technology policy:coordinated and integrated

Technology policy in Japan was always considered as a key to eco‐ nonlic growth and at the same tirne it、vas closely integrated with industry and financial policyo When after the World War Japan faced the immense task of rebullding the economy,they connected reconstruction with import‐ ing the latest technology,、vhich was supported by a selective loan policy.

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7 6 T h e H i k o n e R o n s o N o . 3 0 8

びθ%Sびわ物S ttσん%θ″o騨夕θ″の α物冴 α sθク%あ sゆ少θγ″υタガ%α%び力′ う俗夕.There‐ fore,in the follo、 ving we、 vill concentrate on the technology policy and the

financial background.Also the seed money approach will be taken up,how

the government mobilizes private money and initiates、 vith small invest‐ ments large projects attracting contributions from private companies.

In Japan three main organizations are responsible for national science and technology policy:theヽ在inistry of Education (MIonbusho)mainly for basic research,the Science and Technology Agency(STA)mainly for basic research and the Ministry of lnternational Trade and lndustry (AttITI) mainly for industrial R&D.

The need for cost and risk sharing、 vas first recognized in Japan,when WIITI、 vas established after the war.A/11′rl c。。rdinated technology policy, industrial policy and external econoHlic relations、 vith a supportive finan‐

d a l p o h c y ( w i t h t h e M i n i s t r y o f F i n a n c O . I n W e s t e r n E u r o p e o r t h e U S A technology policy coordination at the national level was started rnuch iater)

in the 1960s only. MITI employed highly skllled engineers 、 vho started

pOstwar reconstruction with a pragmatic approach,first strengthening the econonlic base(energy,steel)and developing demand elastic branches,like textiles and machinery. Already during the reconstruction period techno‐ logy、vas considered an important priority.Reconstruction was to incorpo‐ rate the latest imported technology.For this a priority rationing of foreign currency and irnport tax exemptions were applied (Odagiri, Goto 1993, Wakasugi 1986).The role Of MITI is important nOt Only for supporting

technology but also for integrating the key strategic lines,that is technol‐ ogy,industrial policy,foreign trade and a financial policy.

Another line of coordination is the so‐called consensus creating activity. MITI set up from the early 1950s study groups, research groups and

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SEED MONEY APPROACH IN JAPANESE TECHNOLOGY POLICY 77

deliberative councils (shingikai)to discuss and work out development

plans, In the shingikai acadernics, industry officials, representatives of consumer associations 、 vere invited so that WII′ rl could collect opinions frorn the broad public on the one hand, and popularize ne税アideas, on the other(the rnechanisHl of shingikai is depicted in Figure l),One of the rnost influential deliberative councils in the 1950s、 vas the lndustrial Structure Advisory Council, having altogether 18 subcom■ littees. ′rhe systena of shingikai is being used even today.In the early 1990s there were 33 regular

Figure l Vision formulation and shingikai

GIeattng) ‐Lぅamed indviduals ‐_{Interested Pttes} ‐_{Overscas employees} ―Local representadves ―_Odl孤 (OutSide lecmrs) ceeあack)

本

SubcomnlitteeざRcports) (BriCin ︱ｌｌ ■ Ｙ (Public Reladons) ‐PublicatiOns _ 撫 °r y m ∝d n g S ‐Others (Prepare Draft) Source:On0 1992

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78 The Hikone Ronso No.308

councils attached to MII′rl only (Other rninistries also have their council‐ systems).The shingikai system is a viable way for learning about the trends in the development of companies and is a channelfor a dialogue bet、 veen the

government and private companies.

MIITI runs a number of industry related R退こD programs. These pro‐

grams range froHl energy to blotechnology,grasping a wide field of Rさと]D. The main motivation and the organization of these programs is ailned at

providing a connection bet、 veen basic research and industry.

This connection is helped mainly by the Agency of lndustrial Science and Techn01ogy(AIST)located in MITI.Of the total 13,000 personnel in MIITI,3,591 are in the AIST.But the administrative staff itt the AIST is relatively small(388),the main part is the research staff of the 15 research institutes under the AIST.

Personnel structure of theヽ在ITI MITI

AIST

Administrators 388 15 research institutes 3,203

The research institutes under the AIST are maintaining contacts with

industrial companies belonging to their field of research activity,conducting joint research 、vith thern and picking up progressive ideas for further research.These ideas are for、varded to the AIST fOr further cOnsideration. Several departments of the WII′rl are also involved in Rさと]D,for example the “_〕_ッ_生_{achinery and lnformation lndustry Bureau" actively took part in the}

l )

fifth generation computer project. These adlninistrators are playing an

1)Its activity is formed、vith the ailn to implement technology policy and promote the cooperation for that purposei “′rhe MIachinery and lnformation lndustries Bureau works ciosely、 vith other bureaus to plan and implement policies needed to build an /

13,000 3,591

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irnportant role in coordinating Rさと〕D、vith industrial policy,in the prepara‐ tion of the projects, in establishing the financial background (preparing arrangements with the WIinistry of Finance) and coordinating trade

(lmport)policy.Recently,the 15 specialists from the AIST who are respon‐ sible for the 15 research institutes, are being regularly invited to the meetings of the lndustrial]Policy〕 Bureau.

This pattern of organization ensures a continuous flo、 v of ne、vR退とD ideas frOrn the private companies and frorn the AIST‐ research institutes related to thenl,to the upper level brgans、 vhich can help the realization of these ideas through industrial policy, financial policy and trade policy coordination.Therefore,if one、 vould ask ho、vA/11′rl can discover new ideas to further R退と]D,the answer is clearly that lMI′rl does not need to search for them, since ne、v ideas are supplied by the private companies themselves. MI′rl thus has only to select the most pronlising ones,which of course is again not an easy task. This approach of guidance is probably different fronl the early postwar period when industrial policy、 vas conceived first and for its effective realization technology was promoted accordingly.

One could ask, 、アhy are private companies willing to disclose their ideasP Since basic research is expensive and risky, private companies refrain frorn investing in this field. However, when their ideas could be realized in a government financed project,they are also ready to participate with investrnent funds, There is an information flo、 v also among private companies,basic research is in fact not a business secret.This also explains why there are several research associations of private companies to solve fundamental problems,The keen competition begins after the result of the

ヽenvironment conducive to the healthy development of the machinery and information industries、vhich play a major role in the kno、vledge―intensification of」apan's indus― trial structure."(MIT1 1992,p.14)

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basic research has been achieved.Frorn this stage they compete in commerr cialization to get first to the market and turn the idea into product develop‐ ment and sales.

The government is promoting the transfer of research results of govern‐ ment research institutes to the private sector.'Historically,in the 1950s the

government set up research institutes to achieve ne、 v basic results and then opened theHl to private companies. A classical example is the computer

industry,which was started in government laboratories(MI.Fransrnan 1990

gives a detailed description of the process). ]Recently joint research with private companies is promoted,companies are provided access to govern‐ ment research facilities and fron■1996 government researchers can transfer to private companies for research.

There are various ways of combining public money with contributions from private companies.Of thern the Case of Key Technology Center and Nedo will be discussed. Also, the so‐ called Brain prograrn (a follow‐ up

program to the Technopolls)will be assessed giving new insight into the mechanism of``seed moneyル .1主ere the``third sector company"is a special feature,Ineaning not the usual services,but a rnixed public‐private company carrying out and managing the project.

1.l Japan Key Technology Center

This facility was created jointly by the MITI and the Ministry of Post and Telecommunication in 1985 and belongs today to MITI(more specifi‐ cally,to MI′rI's AIST).Its purpose is to provide help especially to small and mediun■ firms in developing new technologies,and to promote international cooperation.Its activity extends to capital contribution,loans and research services:(Kiban 1996)

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1.Capital investments

lf a minimum of 2 companies establish a joint R&D company,the Center 、vill contribute 70% of the capital required (excluding land pur― chase). ′rhe projects must be in key technologies at the basic or applied level,and have a lifetilne of no lnore than 7 years(in special cases 10 years), The investment contribution means that、 vhen establishing the Rだ乾E)conl‐

pany in a forrn of shareholding company,the Center、 vlll acquire 700/。of the share capital.

Preferred key technology areas are■ lining,rnanufacturing,telecommu‐ nication and broadcasting technologies.

A f t e r r e a l i z i n g t h e r e s e a r c h p r o j e c t , t h e R & D c o m p a n y w i l l b e d i s ‐ solved.Only an office、vorking with fe、v personnel will remain to manage

the patent diffusion. 2.Loans

Loans of up to 70% of the prOject(excluding land)are prOvided for applied research.The project's lifetilne is 5 years.The payback period is 10

years with 5 grace years,The interesting feature of the loan is that interest is not charged if the project fails.But,if the project succeeds,the interest must be returned.To assess the failure or success,the Center undertakes an investigation and evaluation of the project.Depending on its success‐degree, different interesttgrades will be applied, that is the interest rate will be multiplied with coefficients from l.0(full success),through O.75,0.5,0。25 to O (failure).

Loans are provided for the same areas as investments.

As can be seen, ヽ「

一investment contributions are intended to help mainly basic research,

made jointly by several companies,while

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82 The HikOne Ronso No.308

-loans are airned at the applied research,and to help individual cOrn‐

panles.

This specificatiOn indicates the government's understanding that basic research is mOre appropriate to pool the cOmpanies' resOurces 、 _vithOut fearing competition amOng thenl,whereas 10ans can help the cOmmercial‐ izatiOn of ne、v techno10gies for individual firmso Next, we will briefly review the development of investments and loans prOvided by the Center.

Table l lnvestments and loans Of the Center (milllon yen)

1985 1987 1990 1992 1994 1995 1nvestments 2,000 17,300 21,700 22,000 20,900 20,600 Loans 2,000 7,700 6,300 6,500 7,200 7,600 Tota1 4,000 25,000 28,000 28,500 28,100 28,200

The table clearly shOws an increase of investment by the center,This is an interesting phenomenon remembering that cOmpanies are usually nOt rnuch

、villing to cOnduct jOint research.But,On the Other hand,they can find the investment's cOnditiOns more favorable since it is nOt repayable while the loan is in any case repayable. Further, on the MI′ rI's side there 、vas an intention tO give preference tO investment cOntributiOn,because the gOvern‐ ment's support was deemed rllost efficient when helping the risky fundamen‐ tal research. Recently,however,this view became cOntroversial fronl the financial side.

3.MediatiOn in arranging jOint research

The Center provides a lnediation service fOr private cOmpanies、 vishing to conduct jOint research projects、vith national research institutes.It helps to find suitable partners and prepares the jOint research cOntract between the partners.

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AlsO, private companies can entrust the Center to conduct research, when the Center brings together experts fronl the government,industry or acadenlic research to perforrn the task.

4.Japan Trust Fund

This is a special fund created by donations from private companies. The profits Of this fund will be used to invite foreign researchers into key technologies.

5.Research information service

The Center collects and prOvides private companies research informa‐ tion on key technologies.

The capital flow of the Center(Figure 2)shows the sources and uses of capital.The Center has both a base and a、 vorking capital.

Composition ttfhasetaDital ( m i l l l o n y e n )

5,054 1nvestrnent from private companies

lnvestrnent contribution frorn Japan Development Bank 4,200 Government's investFnent Contribution lo,900

2,600) (Loans for patents率

Tota1 20,154 Ⅲ_{After completing the research,the result、vill appear in the form of patents.}

This special loan is provided to the company for the period from patenting until royalties、vill be received from selling the patent.

The base capital consists of contributions froHl private companies,the JDB and the government.These contributions were made in the forn1 0f deposits and securities.The base capital、vas stable throughout the Center's history. The base capital's function is,that the interests and dividends it brings are fed back to the circulating capital and are used mainly for running the Center and for its activities other than investment contributions Or loans tO companles.

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The Hikone Ronso No.308

Figure 2 Capital f10w Of the Key Teohn01ogy Cettter

剛 □

IN‐ VEST‐ MENT LOAN IN‐ VEST‐ MENT LOAN

□

￨ぜ ‐ ￨

田

BASE CAPITAL INVESTMENT CONTRIBUT10NS LOANS INTERMEDIAT10N OF JOINT RESEARCH JAPAN TRUST FUND RESEARCH INFO SERVICE

The working capital's sOurces are t、 vofoldi dividends after the NTT shares in possession of the government,and contributions frorn gOvernmen‐ tal financial institutions.

Why is the capital f10w pattern interestingP Because,although on the input,side there is the gOvernment, the Center has no relation with the

general government budget (e.g, ヽ vith the use of tax revenues)but is completely fed back tO the market(dividends,interests,banking 10ans).

DIVIDENDS AFTER GOVERN‐ MENT POSSESSED NTT SHARES CONTRIBU‐ TION FROM GOVERN‐ MENTAL FINANCIAL INSTITU‐ TIONS ＧＯＶＥＲＮＭＥＮＴ

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1.2 NEDO(New Energy Development Organizatiom)

The NEI)0, established in 1988, has the main purpose to develop

research facilities for new industrial technologies that would be too expen‐ sive and risky for private companies, The organization of establishing a

f a c i l i t y r u n s a s f o l l o w s . F i r s t , t h e N E D O c r e a t e s “R e s e a r c h F a c i l i t y D e v e l ‐ opment Corporations"for the organization of each research facility.Then,

these corporations carry out the establishment. The corporations have a

form of stockholding company whose members are NE】 DO itself, private companies and local governments.For example,the lon Engineering Center

consists of 66 1nembers:NEDO,Osaka Prefecture,Kyoto Prefecture,Nara Prefecture,Kansai Electric Power Co.,Nippon Steel Corp.,Hitachi,Matsu‐ shita,Mitsubishi Electric Corp.,SuHlitomo Electric lndustries,Osaka Gas Co.,Kubota Corp.,Kobe Steel Ltd.,etc.

The financial scheme of establishing a research facility (center)is interesting,because it uses a combination of different resources(Figure 3)。

The project's value consists half of direct investments and half of loans.

Within the 1/3 investment share the private companies usually take more

than fifty percent. The loans of the Japan Development Bank and the

Hokkaido Finance Corporation are interest free(however, with a 10/。 adlninistration fee)for 15 years including a 3 years grace period.As for the

private bank loans, a special governmental financial institution (Sangyo Kiban Seibi Kikin,Industrial Basic Equipment Fund)provides the neces‐ sary guarantee for the loan.

As can be seen froln Figure 3, private companies need to contribute only a rnarginal part,especially if this is shared by lnany(40-60)companies. The lion's share remains,in any case,at the government with 70% of the

t o t a l c o s t s a l l o c a t e d t h r o u g h t h e N E D O a n d t h e J D B . A f t e r o p e n i n g , t h e maintenance costs of the research facility are covered by the participating

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The Hikone Ronso No.308 Figure lnvestrnent 1/2 -local government 一 private companies

3 Financial scherne of NEDO

Loan 1 / 2

Japan Development Bank Hokkaido′ rohoku Develop‐ ment Public Finance Corporation

Private banks

30% t

companles.

In addition,froHl 1992 a think‐ tank like organization was attached to every research center (Kenkyu Kiban Chisetsu Katsuyogata Sendoteki

Kibanchosa Jigyo,or Softo‐ Hojin).This consists of researchers,professors and its work is to monitor the research, to collect new ideas for further research and to forward thern to NEDO.

1.8 The Brain program

ln order to stop further concentration into large cities and to help industries in rural areas,the government devised a comprehensive program

w h i c h w a s e n a c t e d i n 1 9 8 8 a s “K e y F a c i l i t i e s S i t i n g L a w " ( Z u n O R i t c h i H o ) , or as、ve will call it,the Brain‐program.It was,in fact,a follow‐ up program

to the famed Technopolis project(1981),which aimed at creating new

model towns for combining comfortable living space with highも teCh indus‐ tries and acadernia, frechnopolis was quite successful in strengthening

university research centers but failed to link thenl to regional industries. This insufficiency was to be corrected by the Brain prograrn,which planned to set up nationwide 23 Rで笠E)centers in rural areas,

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To start the prograln,MITI entrusted the responsibility to initiate the

p r o g r a m t o t h e J a p a n R e g l o n a l D e v e l o p r n e n t C o r p o r a t i o n ( J R D C ) , a s p e c i a l organ belonging to MI′ rェ. This form of initiation found wide application

fro■l the rlid 1970s when the so―called large development programs were started. One reason was that the organization and management of such large programs exceeded already the capacity of IMI′ rI,and another reason was,that the MITI itself being an adHlinistrative body had not the legal competence to activate investments. Therefore formally new ``executive bodies"、vere set up.As a result,by now a so‐ called organizatory infras‐ tructure has been formed to carry out technology policy measures.In this sense,the JR]DC can be considered as an``extended hand"of MI′ rI.

First,the JRDC issued guidelines on construction conditions and desir‐ able location of research centers for local authorities,which then prepared

project proposals.After screening thern,the JRDC selected the fina1 23 projects.

Next, an executive enterprize, the so‐ called ``third sector" company

(dai san sekuta kaisha)was set up for constructing the research facility, Contrary to general understanding,here third sector does not rnean services, but a rnixture ofjoint ownership between the central government,the local government and the private sectore Such third sector enterprizes were set up already fronl 1973 for public、vorks relating especially to regional develop‐ ment like infrastructure, rall、vay lines, metro lines, later also welfare

projects,information networks etc.This new entity was applied because in the fields rnentioned the market rnechanisHl does not、vork efficiently due to the long tilne horizon of such projects and their indirect business character

(Imamura 1993).Third sector enterprizes in Japanese are known under

different names like zaidan hojin, shadan hojin, kabushiki kaisha (joint_ stock company),yugen kaisha (1llnited company), kosha. Therefore,not

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88 The FIikone Ronso No.308

the naHling but the capital pattern is important.

In the Brain prograrn the third sector company prepared and construct‐ ed the research facility and after completion, it became the owner of the facility.

Table 2 Capital composition of“ Third‐sector"enterprizes (milllon yen)

Average Base Local Private No.of cap.contrib.

capitalキJRDC% gov.Ⅲ Ⅲ% COmp.% firms of one firm%

Asahikawa l.000 600 60 260 26 140 14 Hachinohe 19281 600 46.8 520 32.8 261 20.4 Hitachi 2.050 600 29.3 720 35。 1 730 35.6 Gunコna l.520 600 39.5 300 19.7 620 40.8 Toyamna l.740 600 34.5 800 46 340 19.5 Gifu 2.000 600 30 900 45 500 25 Hamanako 2.500 600 24 750 30 1.150 46 Wakayama l.710 600 35 400 23.5 710 41.5 Tottori l.559 600 38.4 624 40 335 21.6 Hiroshilna 2.685 600 22.3 1.100 41 985 36,7 Tokushima l.369 600 43.8 504 36.8 265 19。 4 Kagawa 2.335 600 25.7 1,350 57.8 385 16.5 Kita‐Kyushu 2.189 600 27.4 1.100 50.7 479 21.9 Kagoshima l.361 600 44 556 33.6 305 22.4 0kinawa l.282 600 46.8 230 17.9 452 35。 3 や_{Without land} 15 9.3 23 11.3 16 45.6 30 20.7 14 24.3 33 15.1 59 19.5 15 47.3 26 12.9 68 14.5 12 22.1 17 22.6 85 5.6 20 15.1 31 14.6 0 . 9 0 . 9 2 . 2 1 . 4 1 . 4 0 . 8 0 . 8 2 , 8 0 . 8 0 . 5 1 . 6 1 . 0 0 。3 1.1 1.1

率孝_{Local and prefecture government together}

Source:author's computation based on JRDC‐ data

What is interesting about this“third sector"enterprize,is its structure, The enterprize is in the form of a joint shareholding company,where the shareholders are the JRDC,the local government,the prefecture and private companies located in the area.Thus,a multi‐ holder enterprize is formed. The number of member companies in the Kita‐ Kyushu Techno Center

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reaches 85.

The JRDC provided capital contribution of a standard Y 600 1nilliottt。 each enterprize,This was the``seed rnoney''.TherefOre,JRDC's capital‐ share became dependent on the tbtal volume Of the base capital.Arnong the

15 enterprizes that have been fOrmed until nOw, in 5 the JRDC h01ds a

majority of shares with an average of 45 percent(only in the Asahikawa

R巡乾E)center it has a surprisingly high share of 60 percent),in 6 enterprizes

the local government has the mttOrity with 45-50 percent,while in 4 the majority belongs tO private coFnpanies.The majority‐_{r01e of the JRDC}

practically means a certain supervisory r01e reflected by the participation of its representative in the management's meetings of the enterprize(later

ofthe R&D center)held 4 tilnes a year.Looking at the capital cornposition

from another angle,it is apparent that capital cOntribution Of the central and local government amounts to 60-85 percent of the total,the rest divided among many private companies.

Owing to the fact that a great part Of the capital is cOntributed by the central and local governments,and the rest is shared by a large number of companies,the capital contributed by a single private company is very small

(′rable 2). The last 2 columns Of the table are especially interesting, sho、ving the average capital cOntribution of private cOmpanies and their

percentage share in total base capital.As can be seen,the capital contribu‐ tion per cOmpany ranges between Y 5-20 million(only in twO cases is it above Y 40 1nillion),、 vhich can be considered a rather low burden even fOr

2 ) T h i s s u m w a s d e c i d e d b y 酌I I T I a n d t h e M i n i s t r y o f F i n a n c e , e s t i m a t i n g t h e c o s t s o f a2000-3000 sq Hl research facility (bullding).At that tilne(Inid 1980s)cOnstructiOn

costs were in the range of Y 700-800 thousand/sq nl, in tOtal Y l.4-2.l billion per project.The government granted a support t0 1/3 of this(Y600 mllliOn)while the remaining 2/3、 vas supposed to be contributed by local authOrities and cOmpanies.

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a Hliddle sized Japanese company.In the total base capital the share of one company is between O.3-2.8 percent,with an average of l percent,which is extremely low. The base capital usually covers about one half of the construction costs including equipment,while the other half is financed by bank credits.Within the credits,generally 600/。 iS COntributed by the Japan Development Bank in the form of partly preferential credits and partly interest‐free ones.

The governlnent's(JRDC)participation in the centers was intention‐

ally low, only 1/3. After realization the calculated average is 36 percent.

Thus in the Brain‐ program the government's share was only a Hlinority contribution, intended to play the role of ``seed‐ Inoney" (in Japanese:

yobirnizu).This seed money had then to attract additionalinvestments from private companies and local authorities.The way of organizing the program is a good example of how the government with its“ seed money" policy attracts private firms.The outcome of the program will benefit participat‐ ing firms which will later undertake further Rdと D activities.Consequently, the``seed money"puts into movement an R退と]D activity which leads to the modernization of industries.

The Rだ乾E)centers in operation are dealing with research and develop, ment(abOut 25 percent of their total activities),education and training (50

percent)and infOrmation service (25 percent). In general,the Brain prO‐ gram created new jobs,helped local companies to progress in their R&D activity and through providing education it helped to upgrade the sklll of employees in local companies.

II Policy based finance and low interest rate

Japan used special financial rnechanisms to influence econonlic develop‐ ment. The 宮overnment's financial activity induced the private sector to

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achieve specified objectives. The need for such a financial guidance is explained in one of the reports as follows:“.…if the private financial rnarket were perfect(in terms Of competition,information and freedom of transac‐ tions)policy based finance would be unnecessary.In reality,however,there are lirnits to the perfect fulfillFnent Of these conditions in the financial market。 (Policy based finance)ailns to stimulate and supplement the a c t i v i t i e s o f p r i v a t e f i n a n c i a l i n s t i t u t i o n s . " ( J D B ‐J E R 1 1 9 9 3 ) T h e g o v e r n _ ment must have some rational reason for starting financial intervention, otherwise such actions would be widely protested by the private sector.For this a consensus‐bullding process is used involving the main participants(in the forHl of shingikai,or deliberative councils).Thus,when the government' s action starts, private companies and banks, feeling the government's support,are also willing to make investrnent coHllnitrnents and open addi‐ tional credits. Actually,this is also a seed‐Inoney approach, the financial seed money policy(or pump priming).

2.l Credit policy

ln general,there are three types of directed credits:1.firrn or industry related credits,2.credits provided on functional criteria like promotion of exports, or stilnulation of small and mediuHl― size companies; 3. credits directed to accomplish social objectives,as for instance housing program. The credit lines are usually exactly specified as for the target,amount and conditions.Projects are undergoing stringent selection standards and per‐ manent supervision during the irnplementation of projects. Continuous monitoring of the performance enabled banks to take early measures if

problems occurred.As a result,loan、 vrite‐offs were very lo、v.For instance in the case of the Japan Development Bank the share of bad loans、 vas O.09%between 1951-1955 and further decreased to O.010/。 in 1955-1965.

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The Hikone Ronso No.308

Table 3 Supply of new industrial equipment funds

1952-1955 Bn.yen % 1956-1960 1961-1965 Bn.yen % Bn.yen % Government funds 」DB 244.1 C)thers 275.5 Subtota1 519.6

比

濫総

胡叩蛤6

Total l,616。 2 Source:JDB,JERI 15.1 17.0 32.1 67.9 100.0 299.9 850.3 1,150。2 3,958.0 5,108.2 5.9 672.7 5.1 16.6 1,867.5 14.1 22.5 2,540。2 19.2 77.5 10,681.8 80。8 100.0 13,221.8 100.0

Table 4 Changes of shares in Fiscal lnvestment and Loan Program(%)

1953 1955 1960 1965 1970 1975 1980 1985 1990

hd堤

孟

耐亀y 29.1 15.8 13,6

Sourcei JDB,JERI

The share of gOvernment(policy based)loans within allloans including those from private banks and financial institutions was 13.2% in 1955 dropping to 9.60/。 in 1965.Thereafter,however,it again increased to 14.10/。 by 1980、 vhich was caused by the dramatic expansion of credits directed to “

Japan's lifestyle base",that is housing and life infrastructure.These loans played a considerable role in creating new industrial equipment and techno‐ logy. They accounted for about a third of new industrial equipment and

technology in the 1950s(Table 3).Even after 1960 their contribution、 vas not negligible,though dilninished to the range of a 19%share.A dramatic

decline began frOm the lnid 1980s resulting in a 8% share by 1990. This change was due partly to the unfolding private financing and partly to a shift in priorities towards living environment.

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ment financial institutiOns. Thus, f?r eXample, the financing pattern Of

probably the mOst influential institutiOn, the Japan Development Bank

r e f l e c t s t h e r e l e v a n t s h i f t s i n p o l i c y p r i O r i t i e s ( T a b l e 5 ) . I n t h e f i r s t h a 1 1 0 f the 1950s in order tO help reconstruction and to mOdernize basic industries,

financing ailned at electric po、_{ver,ocean shipping,iron and steelindustry.In} the catch_up period between 1955-1964 financing targeted chenlicals, machinery and electronic industry. Between 1965-1974, 、 _{vhen Japanese} economy opened tO the world and the、 velfare society came to the agenda, J正)]B prOmoted new techno10gies and mOdernizing industrial facilities in order tO cOnsolidate the industrial base(already frOn■_{1961),helped housing} and antipollution measures. After the oil_shOck (1975-1984) alternative energy sources, techno10gy, infOrmation and cOHllnunicatiOn、_{vere prefer‐} red,FrOnl 1985 in order tO revitalize ecOnonlic activity,financing fOcused on

p r i v a t i z a t i O n ( J a p a n e s e N a t i o n a l R a i l w a y s a n d N T T ‐_{N i p p o n T e l e g r a p h} and Telephone Public COrporation), new techno10gies like biOtechn010gy and space industries, development of railroads (Shinkansen superexpress lines)and regional deve10pment.

Industry,its strengthening,restructuring and ratiOnalization、_{vas in the} forefront Of JE)]B 10an policy until the rnid 1960s, frOrll when techn010gy support came up by a relatively stable share of Over 10% (′ _{rable 7).} ThrOugh suppOrting technology,JDB fulfilled an impOrtant functiOn Of risk sharing for private companies in their]RばとD activity as、vell as in cOmmer, cialization Of new techn010gies.AnOther important functiOn Of the JDB is the financing of large projects with 10ng investment recovery periOds, typically in the field Of energy.

The mechanisrn of J正 )B financing according tO national p01icy lines was based On the c10se interrelationship between gOvernmental deliberative

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Table 5 Changes in government policies and Period Policy otteCtiVe

-1954 EconoHlic reconstruction and self Reconstruct and modernize basic industries sufficiency

1955-1964 Catch up to the developed Foster infant industries countries

Correct regional disparities Develop the industrial structure respond to regional issues

1965-1974 Promote national land develop― Promote urban and regional development ment and social development.

Construct a welfare SOCiety lmprove national living standards Build a foundatlon for econonllc

and social development Promote technological development Secure a stable energy supply 1975-1984 Ensure economic security Secure a stable energy supply

Attain stable economic growth Promote development of original technologies lmprove national life Consolidate and develop the llving environment 1985-1988 Promote econonlic restructuring Promote industrial restructuring

Expand domestic demand Provide conditions for foreign and domestic Stabilize and improve national competition

l i f e

lntroduce private‐sector vitality into the development of social sector

Promote information―related industries lmprove national welfare

1989- Build up the foundation for lmprove living standards and urban infra・ national living standard structure

Reduce international econornic

friction Promote internationalization Balanced development among

regions Promote industrial restructuring Revitalize regional econonlies Sourcei JDB,JERI

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respo,ses by the Japan Development Bank

Priority fields

Electric po、ver,coal mining,Ocean shipping,iron and steel

Synthetic fiber,petrocheHlicals,nuclear power generation,Inachinery and electronic industries.

Petrochenlicals,automobiles,spinning industry,ocean shipping Reglonal development

Urban redevelopment,modernization of goods distribution systenl,private rail、vays,housing deveト opment.

PollutiOn control,housing industry,food safety measures,gas,national welfare facilities. New technologies,dOmestically―_{produced cottputers.}

National oll companies,domestic production Of nuclear po、ver generation equipment Use of alternative energy sources,energy conservation.

PromotiOn of techn010gy,promotion of infOrmatiOn processing and cOnllnunicatiOns. Urban development,regional development,imprOvement of national life

Enterprise restructuring projects, regional activation prOiects. stabilization of the shipbuilding industry

PromOte facilities for imported goods and direct investments into Japan

Key railroad development and construction of new lines,

PrOmOte private―sector investment in regional econOnlies,Kansai Cultural Academy and Research City,resort area development

New telecommunication compantes,VAN.

Promote employment of disabled people,fee‐charging hOmes fOr the aged.

Social capital development,key transportation facilities,efficient goods distribution systenl,envi‐ ronmental rneasures,

Promote facilities for imported goods and direct investment into Japan.

Enterprise restructuring proiects,regional activatiOn prdectS. Regional development,forHling multi‐_{polar pattern of natiOnal land use.}

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intervention towards the industry and therefore only gave policy guidelines. These guidelines,however,were then realized by the shingikai systenl,since the deliberative councils decided on projects to be financed by the J正 )B.

Government policy priorities have a seed money effect for channeling

private financial institutions.When the government selects an industry or technology for support,this is a sign for private financial institutions,that the field is selected for future development and、 vill enioy 10W interest rate loans or taxation.Sensing this kind of protection and favourable treatrnent,

private institutions will also prefer lending to companies in priority fields. For thern the participation of government banks is in fact a risk sharing factor, since they assume that the government bank made a thorough

feasibility study on the project and that it、

vill also help with subsidies in

case of difficulties the successful accomplishment of the project(HiganO

1995).Once a cOntact has been established with JDB,its goodwill will be a

key to obtaining further loans from private banks. Hence, the essential

point is how“to be introduced to the JDB''.For this,there are four main routes(Higan0 1986).

1.Small and rnediunl companies are introduced through an organization called “Small and medium company investrnent promotion". This

organization was set up by the government in 1961-1962 to support investments of smaller companiese When the support granted for a company has reached the maxirnunl lllnit and the company needed more capital, this organization introduced the company to JDB for further credits.

2. City banks, when running out of funds for their clients, introduce them to JDB.

3.A cornpany having contacts with JDB,introduces its partner(subsidi‐

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Company

4 . C o m p a n i e s t u r n d i r e c t l y t o J D B w h e n t h e y c a n c o r n p l y w i t h c r e d i t priorities announced by JDB.

Table 6 ●xamples Of guiding private fundsホ

(million yen)

Initial contact with Before JDB lending Bank transactions JDB through after JDB lending

Case Ai Chemical capital amount中中:

Small Business lnvestment Co. 200

l city bank One long―tem credit l regional bank bank started to lend

Case Ci Machine lease lntroduction by main bank

capital amounti 220

Case D:Home appliances lntroduction by lnain bank

capital amoun位 950 Case B:Foundry

capital amounti 150

Case E:Electric compo・ nents capital amounti 980 Case Fi n.a. capital amounti 350 Small Business lnvestment Co. Introduction by parent company lntroduction by parent company l Sogo bank l city bank 2 city banks

1 long terll credit bank

2 city banks

l city bank l trust bank

2 city banks

One long‐term credit bank started to lend Outstandings of private

banks iending tripled One long,teHn credit

bank started to lend Another two city banks

increased outstandings 2 0 %

Another 2 city banks started to lend All(a tota1 0f five)

banks doubled their outstandings Two long‐tem credit

banks started to lend. All four banks began

to apply the long tem prime rate

After JDBもreschedu‐ ling、vas approved, private banks applied the prime or sub‐ prime rates and app‐ roved the withdrawal of the deposits Two regional banks in‐

creased the outstand‐ ings twenty times All private banks app‐

lied the prime rate Case G:Machine tools Small Business ln- 2 regional banks

vestment Co. capital amoun± 200 (applied for the new

technology loan program) ・_{Cases during the 1960s and 1970s}

ttCapital amount is for the company's base capital Source:Higano (1986)

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98 The Hikone Ronso No。 308

The reliance of private banks is so firnl,that they often provide financing 、vithout exa■lination Of the project's background (′rsuruta 1982).In′rable 6、ve can follow the seed money effect,when after 10ans have been granted by the Japanese lDevelopment Bank,private banks also opened credits for companle.

2.2 Low interest rates

Japan, as Other Asian countries, like Korea, Malaysia, Taiwan, used lo、v interest rate policy to stilnulate investments and techno10gy.In general,

positive real interest rates,as a rule,attract savings,while negative interest rates induce savers rather to spend than save their income. Since slightly negative interest rates do not considerably influence savings, the govern‐ ment can use the low interest rate policy tO channel savings tO investments, because lower bOrro、ving rates increase demand for loanse When,hO、vever, excess dPmand fOr loans appears,the risk of inefficient allocatiOn is greater so that this demand should be regulated through selectiOn measures either by the government or private banks,

Japan has been using the 10w interest rate policy cOnsciously for speeding up ecOnornic growth and industrializatiOn.Low interests coupled with credit channeling by government financial institutiOns into priority fields ensured the concentrated and efficient use of financial resOurces. Thus,low interest rates,against general theory,do not resultin 10w grOwth but on the contrary, they can contribute tO new investrnents and rapid

growth.A WOrld Bank study also states,that``generally,financial repres‐ sion is associated with 10、v ecOnonlic growth,especially、vhen real interest rates are strongly negative. But test of the relationship bet、_{veen interest} rates and gro、vth in Japan, Korea, and Taiwan, China, do not shOw the negative relationship bet、veen interest rate repression and gro、 vth ..."

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(World Bank 1993).

In Japan real interest rates between 1953-1991 were in average-1.120/。. Real interest rates on deposits were negative until 1983 and thereafter they 、vere positive but rather low.Interest rates、 vere also highly stable,small adiuStments occurring once during five years(Table 7)。

Ho、v could negative real interest rates be maintained for 30 yearsP There are several reasons. frhe most general one is the high Japanese savings propensity(for education,health,housing),which causes savings to stay at relatively high level even if conditions are not the most favourable. In addition,Japanese citizens have no choice to transfer their savings to foreign banks eventually offering higher interest. Another possibility for

Table 7 Trends in interest rates(%)

JDB

Long terrn Standard prime rate interest

rate

Preferential Postal Electric Coal savings

power,ocean ■ 1lning etc.shipping electronics, 1951 1952 1953 1954 1955 1 2 . 0 1 0 . 6 ￨￨ 1 0 . 2 9,0 3.15 4 . 8 ￨￨ 10.0 1 7 . 5 8.7 6.5

￨百

1

1 1 5 . 0 4.7 6.5-7.5 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 6.5-7.0 1 Source:JDB,」 ERI

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savers would be to buy foreign debt bonds(frOrn the 1980s),but Japanese

generally refrain from that counting on uncertainty of repayment from foreign countries or banks.According to an opinion,savers did not complain of low interest rates either, since they 、vere actually re、varded by rapid income growth generated by accelerating economic grOwth(Tsutsui 1996).

This is to mean then,that negative interest rates will be tolerated if savings turn fast into investment generating higher incomes.

The lending rates were different according to whether 10ans were

provided by private or by governmental banks. Private banks charged a

higher interest rate due to many restrictions affecting the private financial s e c t o r ( J D B , J E R I ) . F o r e x a r n p l e , i n a c o n t e s t l a u n c h e d b y t h e B a n k o f Japan (BOJ),coHllnerCial banks could expand their branch networks only

if they complied with the BOJ's guidance about the spread between deposit and lending rates,or they could open urban branches, if they also opened branches in rural areas(Yoshino 1993).Further,in the gososendan‐ system

(convoy,systern)they、 vere asked to buy out weak or bankrupt banks in order to keep banks together as a convoy, thereby providing a stable

financial base for the economy.Private banks were、 villing tO accept such actions(mergers),because this was also a way for them tO expand their branch net、vorks(Ito 1995).With competition restricted,the private banks had to maintain high interest rates,while government banks、 vere able to offer lo、ver rates. Government banks even within their standard interest rate provided preferential treatment with lower rates for priority fields. The Japan Development lBank,for example,charged interest rates 2-2.5% lower, than its standard rate for priority projects, like ocean shipping, electronics and machinery(Table 7)

As a result, low interest rate loans considerably contributed to new investments and technology.There are,however,different Opinions t00,as

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to the efficiency of this policy. A quantitative macroeconoHlic analysis reveals that excess loans to manufacturing did not raise productivity on a value added base(Hamada et.1987).Rather,the large money affluence at banks caused an inefficient banking adHlinistration. As banks were

maintained in a stable position,through this(the cOnvoy‐ system)there was an indirect support for industry.A direct support could be identified only in as much as low interest rate loans、 vere directed to priority branches which were considered as high growth industries(Tsutsul 1996).

III Some conclllsioms

The analysis of Japanese technology policy leads to the conclusion that the reasons for its success iay not within technology itself but extend to related fields like financing and consensus creating. Thus in fact, a “full‐ line'' of technology policy is in existence from priority setting through interest harmonization to effective realization.In the base of this line is the recognition,that in modern market econolnies Rさ』D projects involve large costs and high risk, therefore private companies are willing to start research projects,especially in fundamental research,if government shares risk、vith them.

In this risk sharing the seed money approach is playing an important role. By pooling and combining financial resources, the government is capable to stirnulate research, private companies become interested in

joining government initiated projects and benefit from later commercializa‐ tion.

In the extensive interest― harmonization and consensus creating a piv‐ otal institution is MI′rI,its r。le changed over tirne frorn strategy lnaking in the 1950s to rather a think‐ tank function at present.That MITI is not a unique Japanese phenomenon,is proven by the experience of other coun‐

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tries, especially South Korea and China, which recently also introduced SiFnilar institutions.

A supportive financial policy providing long terrn and low interest rate credits is promoting research and technology projects at private companies. In this sense it is a constituent part of the seed rnoney approach.The regular monitoring frorn the banks helps to correct unexpected deficiencies and to

effectively relize the project.This required a main bank systern with inter‐

est rate coordination (Stein 1996 provides a concise description of the Japanese banking).

How extensive is the role of seed money in total Rだ乾E)spendingsP The JDB loans, for example, cover usually 30-50% of the prOject's costs and allnost the whole “policy based finance" together with the differencies between standard and preferential interest rates can be considered as seed money,Also, other agencies must be included,c,g.the Japan science and Technology Corporation(before 1996 JRDC),an important research insti― tute of the STA,which finance industrial projects and introduce results of basic research to industry, And how iarge rnight be the share of private investments attracted by the seed moneyP In prOjects financed by the J正)B

it is between 50-70% of the value of the project.Although a general

estilnation would need a thorough survey,it can be stated with certainty, that a considerable part of the private sector's 80% share in total R&]D spendings is linked to the seed money effect.In addition,policies other than seed money (e.ge pollution prevention)also have an influence on private Rだ笠E)investments, which is why governmental guidance is broader than seed money. Even if considering this circumstance, the private sector's share in total RさとD spendings remains massive.

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