Where did Japan's technological leadership go?

Where did Japan's technological leadership go?

In recent weeks, the Japanese diet passed the economic security law, thus ending a long-lasting debate in the country. The text approved by parliament is part of Prime Minister Kishida Fumio's project of "new capitalism", who also dedicated the creation of a ministry in his cabinet inaugurated at the beginning of October to economic security. "I will take steps to ensure we have strategic technologies and supplies, to prevent technologies from escaping the country and to create a self-sustaining economy," he said shortly after his appointment.

The design of law introduces major changes to Japan's industrial and technological landscape. With the outbreak of the technological conflict between China and the United States, many Japanese companies found themselves in the crossfire of the two countries. While these geopolitical tensions and the pandemic pushed several companies to rethink their supply chains, Tokyo was also thinking about what to do.

What is happening between Taiwan and Italy on microchips One of the most important global companies semiconductor company, Tsmc, wants to install a plant in Europe. Due to the deadlock in negotiations in Germany, Italy is gaining ground. But between subsidies and geopolitical calculations, the game is open What the law provides The debate was led by the Liberal Democratic Party, the ruling party, which has articulated its bill into four points: strengthening supply chains, securing critical infrastructures, public-private collaboration in research and secretation of some sensitive patents. The rationale of the provision is undoubtedly to protect Japan's technological-industrial heritage from possible interference from hostile actors, such as China and Russia.

The law, which will gradually come into force over the next few years, establishes that associations will be created between public and private entities on strategic technologies (such as artificial intelligence) in order to support research, and that patents of some sensitive dual-use technologies may be classified. The heart of the provision, however, is that which concerns supplies and infrastructures. On the one hand, Tokyo has pledged to identify goods and materials critical to the Japanese economy and to provide financial support to companies to reshape supply channels to ensure stable supplies.

Semiconductors, rare earths and pharmaceuticals are some of the categories that will be covered by the law. On the other hand, the new law enumerates 14 sectors (such as electricity, gas, oil, running water, telecommunications, finance, railways, shipping and aviation) on which the government will be able to extend its scrutiny as regards the components and software to be used in own infrastructures: Japanese companies will have to submit their upgrade plans to the public authorities so as to give the government the possibility of verifying that no foreign products are installed that are considered vulnerable to cyber attacks.

The business community fears that it is Too much room has been given to the government to meddle in corporate decisions. With 138 sections awaiting ministerial orders for implementation details (which do not require parliamentary approval), the real scope of the law still remains unclear. However, during the discussion between the parties, support for the measure was bipartisan.

The great technological alliance between Europe and the United States Washington and Brussels want to coordinate efforts for common standards and projects in the tech field, from 6G to artificial intelligence, cornering China. An agreement that, however, reserves many obstacles. The plugged holes From some points of view, the new regulation on economic security covers some existing holes in the country's economic system. Primarily with regard to cyber security. For a developed country like Japan, it is difficult to understand how still in 2018 only 55% of companies conducted cyber risk assessments. Some recent episodes have highlighted the criticality of the problem. In March, Denso, an automotive technology component company, suffered a ransomware attack in which 1.4 terabytes of data, including technical drawings, were stolen. A few weeks earlier, 14 Toyota factories had been forced to temporarily stop production due to a cyber attack on one of its suppliers.

The review of supply chains, with a focus on China, is instead, the logical continuation of the efforts started already in 2020 under the government of Abe Shinzo and continued in the last two years. The most promising result for now is the decision by Tsmc (the world leader in semiconductor manufacturing) to open both a production plant in tandem with Sony and an advanced research center near Tokyo, thanks also to public subsidies secured by the Japanese government. From this point of view, the new law on economic security will be grafted onto a regulatory landscape that has already taken important steps.

When Japan was the tech antagonist of the United States At the end of the 1980s, yes he imagined an impending confrontation, even an armed conflict, between Washington and Tokyo. A clash also based on technological competition. Today that role belongs to China. And what happened to Japan? The forgotten leadership In the technological field, however, in recent decades Japan has lost the avant-garde position it had earned towards the end of the last century and today it maintains an industrial dominance only in some niches: some of these are flash memory, sensors of image, gases for the production of semiconductors and obviously also robotics. Nonetheless, what remains is a fraction of the technological and innovative power that was postwar Japan, a country that held 50% of world semiconductor production in 1988 and that first connected cell phones to the internet. Today, in these and many other fields, Tokyo is well behind countries such as Korea and Taiwan.

It is unlikely that the law will revive the Japanese industrial-technological system to regain the avant-garde position that it once was. lost. The reasons for the retreat are deeper, more complex and interrelated. They concern the implosion of the post-war managerial development model that allowed the socialization of business risk with other companies (as in the case of keiretsu) and with the government itself, the consolidation of a risk-averse and highly hierarchical entrepreneurial culture that did not leave room for innovative ideas, and the accentuated insularity in which the Japanese technological-industrial world lived for a long time.

The new law will not eliminate these elements of the Japanese production system, which cost Tokyo the own crown as a global technology leader. However, it can help soften some aspects. An example of this are the investments of Tsmc, which should help Japanese companies get back into the race for the production of semiconductors. The key, however, more than in the measures per se, will lie in Japan's ability to start thinking about an active industrial development policy, which puts its numerous scientific, technological and innovative resources at the center of the Japanese production system. Finding the most effective political formula will not be easy but, in an era of deglobalization and strong geopolitical tensions like this one, what the law on economic security tells us is that Japan intends to rediscover its ability to design and guide the country's development. .

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