Japan’s finance ministry has decided to tackle one of the great unanswered questions of innovation and finance. Can $100bn buy a nation back its mojo?
In an effort to reignite Japan’s flame, the government revealed last month that it would establish the world’s largest university endowment fund in March 2022. The initiative has a lot to do with Kazuto Ataka, a refreshingly strident neuroscientist, artificial intelligence evangelist and chief strategist at Yahoo Japan.
At the moment, Japan is not creating enough innovators willing to mount a challenge, Ataka tells me. Nor are researchers pushing to turn their work into something tangible. Everything, he adds, depends on them emerging.
This time last year, Ataka published a bestseller, Shin Nihon (New Japan). It sold rapidly and succeeded in convincing large numbers of readers that the country had a fundamental problem (in fact, many interlocking problems) with innovation, disruption and the conversion of basic research into usable products. And the window for addressing the issue is closing fast.
Over the years, crackingly told narratives of existential threat have occasionally captivated broad Japanese audiences. This one appears to have resonated even further and been noticed by government decision makers.
Japan now has only one company, Toyota, in the world’s top 50 by market value. Once an innovative technology leader, the country is today far from being an instinctive, fearless challenger of boundaries. Three decades ago, 32 of the top 50 companies were Japanese. That slide coincides with the steady fall of Japanese universities through the global academic rankings and a worldwide decline in Japanese research paper citations from fourth place to 11th since 2000.
The missing mojo is not irretrievable, Ataka argues. But its absence is painfully noticeable at a time when China, South Korea, Taiwan and other Asian countries seem to be leaning hard into a “fourth industrial revolution” driven by AI, molecular machines, big data and other technologies.
Over the past two decades, Japan’s global share of patent awards has fallen from more than 30 per cent to 10 per cent. Researchers last year found that the total planned $160bn R&D spending of just five US companies (Amazon, Facebook, Apple, Microsoft and Alphabet) was bigger than that of the whole of corporate Japan.
“Japan today cannot even ride the waves of technological and industrial innovation, let alone create them,” Ataka begins one chapter.
Armed with warnings that Japan’s standing as a nation was threatened by its failure to invest in research, Ataka took the idea of a publicly funded endowment to the government. Ministers were unusually decisive. In early February, the administration of Prime Minister Yoshihide Suga approved the plan to create a giant endowment fund that will feed research with its annual gains.
The fund will be seeded with Y4.5tn ($42bn) of state financing and, if all goes to plan, later swell to Y10tn through university fundraising and additional government debt.
Its purpose — as well as simply expanding the availability of research funding — is to foster a less constrained approach to scientific risk-taking. As a symbol of intent to remain competitive, and of a refusal to accept the decline indicated by the global rankings, the move is powerful.
Celebrations may be premature, however. Initial indications from officials are that the government is planning to run the fund with roughly the same risk profile and portfolio allocations as the Y179tn Government Pension Investment Fund — a behemoth that achieves annual returns of about 3.4 per cent. At those levels, the university endowment would generate about $3bn of new research funding a year.
That’s certainly not insignificant, but perhaps not enough, given that Harvard’s $40bn fund generates more than that alone. The government needs to convince a nation of young researchers that they now live in an entirely new realm of funding.
For the Y10tn fund to recover Japan’s mojo, it needs to be coupled with a broader acceptance, Ataka says. An innovative society needs a permanent pool of people who are not only different from everyone else, but actively cherished for their desire to disrupt everything.
At the end of the second world war, the country’s innovators had an easier time of it, because the constraining hierarchies were broken. “Japan today isn’t broken in that way, but everyone understands that it cannot just be left as it is,” he says.