Commentary / Japan

What it takes to foster innovation in Japan

by Haruaki Deguchi

For Japan, the 30 years of the Heisei Era was a period of economic stagnation. Japan’s share of global GDP measured in purchasing power parity more than halved from slightly less than 9 percent to around 4 percent today. According to the Institute for Management Development’s World Competitiveness Rankings for 2018, Japan tumbled from first to 25th place in terms of international competitiveness. Thirty years ago, 14 of the top 20 businesses in terms of aggregate market value were Japanese businesses. Today, there are no Japanese firms in the top 20. It is deplorable that Toyota Motor Corp., Japan’s top company, is now ranked at 35th on this global list.

The reason for this is clear: Japan failed to give birth to new industries such as GAFA (Google, Amazon, Facebook and Apple) or unicorns (unlisted venture businesses established within the past 10 years with an estimated value of $1 billion or more). The fundamental reason for the stagnation is that Japan was simply unable to foster innovation.

How, then, is it possible to facilitate innovation? Economist Joseph Shumpeter pointed out that innovation consists of combining existing pieces of knowledge. Our experience shows that the greater the difference between one piece of knowledge and another, the more interesting the innovation born through their combination. In other words, diversity is more important than anything else. In Silicon Valley, the mecca of innovation, highly educated people from around the world hold heated and lively discussions. We realize that innovation is born out of such discussions. To wit, the key concepts behind innovation are diversity and excellent higher education.

The labor productivity of a nation is in direct proportion to the ratio of people in the population who completed graduate school. It would be easy to imagine that if there are a lot of people with deep knowledge in their fields of expertise and who are also equipped with a broad range of knowledge, these people are more likely to create more interesting ideas. Innovation is born at universities and research organizations, and institutions that give birth to innovation tend to be concentrated in particular areas — in the case of the United States, for example, the San Francisco Bay Area, where Silicon Valley is located, as well as Boston and San Diego. In China, these areas are found in Beijing, Shanghai and Shenzhen. To give rise to more innovation, we also need to beef up our own universities and research institutions.

What then is diversity? Diversity for universities would mean more women, foreigners and adult students. The Ritsumeikan Trust, to which I belong, runs two universities: Ritsumeikan University and Ritsumeikan Asia Pacific University (APU), of which I serve as president. The trust also oversees four combined middle and high schools and one elementary school. This year, the Ritsumeikan Trust had its first female vice president.

According to a World Economic Forum survey of the position of women in society, the social position of women in Japan ranks 110th among the 149 countries surveyed. This position is incredibly low for an advanced country. Japan needs to raise the social position of women by introducing a quota system in every possible field.

How about foreigners? I cannot help thinking that the source of the U.S.’ vitality as a nation lies in its inexorable ability to attract excellent youth from every corner of the world. Founders and managers in GAFA and unicorn businesses include many foreigners who studied in the U.S. Considering this, Japanese universities need to attract outstanding students from abroad — like American institutions — to revitalize themselves.

Indeed, the Trump administration’s hard-line stance against immigrants provides a good opportunity for Japan to attract talented students from around the world. To more easily attract these students, entrance exams should be offered in English and the school year should start in the fall. One of the big reasons that APU has nearly 3,000 students from more than 90 countries and regions is that students can apply in English or Japanese and enter school in the fall. One way to achieve reform would be to make a political decision to reduce grants to universities that do not make these changes.

Another important step that universities must take to attract international students is to gain accreditation from international accrediting bodies. APU has accreditation from the Association to Advance Collegiate Schools of Business (AACSB) as well as TedQual certification from the United Nations World Tourism Organization. At present, only four Japanese universities have AACSB accreditation and two are certified by TedQual. To encourage business creation in Japan, deregulation will be needed to give foreign students a level playing field with their Japanese counterparts.

Japanese universities also lack diversity when it comes to the age of their students. Most students are between the ages of 18 to 22. Students 25 or older account for less than 2 percent of the total. This lack of diversity in student age contributes to limiting educational results. APU attaches importance to recurrent education, accepting mid-career professionals under the Global Competency Enhancement Program.

This program brings those with job experience to campus for a two or four month term as “reverse interns,” living and studying alongside regular students. To make recurrent education more effective, Japanese society as a whole needs to introduce a system to allow people who have worked for, say, 10 years to have a two to six month furlough to refresh and study. The progress in society, science and technology is so rapid that it will be necessary to establish a system in which people can go between university and their career at roughly 10 year intervals.

To raise the overall education level of society, it is vital that businesses and organizations are willing to offer competitive wages to hire people who studied at graduate school. Not everyone is driven by an altruistic motivation; what best motivates people are incentives. Unless a corporate culture is established in which people with advanced master’s and doctoral degrees are respected and highly rewarded, any attempt to raise the overall education level in Japan will be a pie in the sky.

We need to transform Japan’s current corporate culture where the standard practice is to hire those who have completed their undergraduate degree. Implementing the reforms I have spelled out here will be the quickest way to foster innovation.

Haruaki Deguchi is the president of Ritsumeikan Asia Pacific University in Beppu, Oita Prefecture. A popular lecturer and the author of more than 30 books, he founded Lifenet Insurance in 2008 after a career spanning nearly 35 years at Nippon Life Insurance Co.