Market failure mentality in Japanese industrial policy: case studies of robotics and aircraft industries

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MARKET FAILURE MENTALITY IN JAPANESE INDUSTRIAL POLICY:
CASE STUDIES OF ROBOTICS AND AIRCRAFT INDUSTRIES

by

Yujen Kuo

__________________________________________________________

A Dissertation Presented to the
FACULTY OF THE USC GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(POLITICAL SCIENCE)

December 2009

Copyright 2009 Yujen Kuo

ii
TABLE OF CONTENTS

LIST OF TABLES vi

LIST OF FIGURES ix

ABBREVIATIONS xiv

ABSTRACT xix

CHAPTER 1: INTRODUCTION 1
1.1 INTRODUCTION 1
1.2 CURRENT INDUSTRIAL POLICY DEBATES AFTER 1990s 2
1.2.1 Convergence View 3
1.2.1.1 Economic Maturity and Globalization Argument 4
1.2.1.2 Technological Frontier Argument 6
1.2.1.3 Financial Deregulation Argument 10
1.2.1.4 Nothing about Industrial Policy Argument 11
1.2.2 Non-Convergence View 14
1.2.2.1 Industrial Policy Still Works for Japan Argument 15
1.2.2.2 Industrial Policy Does Not Work for Japan at 19
Current Stage
1.2.3 Hybrid View 21
1.3 ANALYTICAL FRAMEWORK: JAPANESE MARKET 31
FAILURE MENTALITY
1.3.1 Japanese Market Failure Mentality Theory 31
1.3.2 Japan’s Postwar Self-Imposed Weak Military Market 43
Structure
1.4 RESEARCH APPROACH AND METHODS 50
1.4.1 Case Study Methods 50
1.4.2 Limitations of Case Study Methods 55
1.5 STRUCTURE OF THE DISSERTATION 56
1.6 CONCLUSION 60

CHAPTER 2: THE DEVELOPMENT OF POSTWAR JAPANESE 62
INDUSTRIAL POLICY
2.1 INTRODUCTION 62
2.2 JAPAN’S POSTWAR ECONOMIC MIRACLE AND 63
INDUSTRIAL POLICY
2.2.1 Japan’s Postwar Economic Miracle and Industrial Policy, 63
1950s-1980s

iii
2.2.2 Market Failure Mentality and Japanese Industrial Policy 74
2.3 THE BURST OF BUBBLE AND THE REFORMS IN 1990s 83
2.3.1 The Burst of Economic Bubble 83
2.3.2 The Reforms in 1990s 85
2.3.2.1 Administrative Reform and Government 88
Reorganization
2.3.2.2 Economic and Financial Deregulations 91
2.4 JAPAN’S S&T REFORMS AND METI’S CURRENT 95
INDUSTRIAL POLICY
2.4.1 Japan’s New S&T Structure and Industrial Promotion 97
System
2.4.2 New Institutional Arrangements and Hub Organizations 102
2.4.3 University Revitalization and New Government-Industry- 108
Academia Alliance
2.4.4 SME Revitalization 112
2.4.5 METI’s Current Industrial Policy 117
2.5 CONCLUSION 122

CHAPTER 3: JAPAN’S ROBOTICS INDUSTRY 125
3.1 INTRODUCTION 125
3.2 THE DEVELOPMENT OF JAPAN’S ROBOTICS INDUSTRY 127
FROM 1960s TO 1980s
3.2.1 Early Development of Japan’s Industrial Robotics from 127
1960s to 1980s
3.2.2 The Role of Government in Industrial Robotics 129
Development
3.3 CURRENT STATUS OF JAPAN’S ROBOTICS INDUSTRY 133
AND INTERNATIONAL ASSESSMENT
3.3.1 Current Status and Weaknesses of Japan’s Robotics 133
Industry
3.3.2 International Assessment of Robotics Technology 147
3.3.3 Examples of Military Robotics in U.S. 151
3.4 JAPAN’S 21st CENTURY NEXT-GENERATION ROBOTICS 157
DEVELOPMENT STRATEGY
3.4.1 Background and Current Strategies in Promoting 157
Tri-Use Robotics Technology and Diversifying
Applications of Next-Generation Robotics
3.4.2 National Humanoid Robot Project (HRP Project) 169
3.4.3 The 21st Century Robot Challenge Program 183
3.4.3.1 Strategy One: Common platform 186
3.4.3.2 Strategy Two: Diversifying application 192
3.4.3.3 Strategy Three: Fast commercialization 195

iv
3.5 DIVERSIFY APPLICATION OF ROBOTICS TECHNOLOGY 206
3.5.1 MOD/TRDI: Future Unmanned Defense System 211
3.5.2 METI/NEDO: Hybrid Assistive Limb (HAL) Robot Suit 215
3.5.3 METI/NEDO/TRDI: Kawada’s Portable UAV 223
3.5.4 METI/MAFF/JUAV: Yamaha RMAX UAV 230
3.5.5 METI/NEDO/IRS: Kenaf Rescue Robot 239
3.5.6 METI/MEXT/JST: Humanitarian Demining Comet Robot248
3.5.7 MEXT/JAMSTEC: Urashima UUV 254
3.6 CONCLUSION 262

CHAPTER 4: JAPAN’S POSTWAR AIRCRAFT INDUSTRY 266
4.1 INTRODUCTION 266
4.2 THE POSTWAR DEVELOPMENT FROM 1950s TO 1990s 269
4.2.1 Contract Maintenance/Repair and Licensed Production 269
4.2.2 Indigenous Development Attempts 279
4.2.2.1 The YS-11 Project 283
4.2.3 International Joint Production 286
4.2.3.1 Boeing 767 ICP Project 288
4.2.3.2 Boeing 777 ICP Project 291
4.2.3.3 V2500 Engine ICP Project 294
4.2.3.4 FS-X/F-2 Fighter Joint-Development Project 295
4.3 CURRENT STATUS AND INTERNATIONAL 304
ENVIRONMENT
4.3.1 Current Status of Japan’s Aircraft Industry 304
4.3.2 Major Weaknesses and Embedded Structural Problems 305
4.3.3 International Environment in 1990s 318
4.4 JAPAN’S 21st CENTURY AIRCRAFT INDUSTRY 323
DEVELOPMENT STRATEGY
4.4.1 Introduction 323
4.4.2 Diversification Development of ICP Projects 324
4.4.2.1 Airbus A380 ICP Project 325
4.4.2.2 Boeing B787 ICP Project 327
4.4.2.3 Next-Generation Supersonic Transport (SST) 331
and Other ICP Projects
4.4.3 Indigenous Development of National Projects 337
4.4.3.1 Mitsubishi Regional Jet (MRJ) Project 340
4.4.3.2 TRDI/MHI ATD-X Project 359
4.4.3.3 The P-X and C-X Projects 363
4.4.3.4 Boeing AH-64D Licensed Production Project 368
4.4.4 Possible Structural Transformation? 371
4.5 CONCLUSION 374

v
CHAPTER 5: CONCLUSION 377
5.1 INTRODUCTION 377
5.2 JAPANESE MARKET FAILURE MENTALITY AND 377
INDUSTRIAL POLICY
5.2.1 Redefinition of Japanese Industrial Policy 377
5.2.2 Japanese Market Failure Mentality and Weak Military 382
Market Structure
5.3 POST-BUBBLE INDUSTRIAL POLICY AND ITS 385
ARTIFICIAL MARKET FORCES
5.4 COMPARISON OF ROBOTICS AND AIRCRAFT 389
INDUSTRIES
5.4.1 Early Development of Robotics and Aircraft Industries 389
Comparison
5.4.2 Current Strategy Comparison 394
5.4.3 Comparison of Major Findings 400
5.5 IMPLICATIONS TO JAPAN’S CURRENT POLITICAL 402
ECONOMIC ARRANGEMENTS
5.6 CONTRIBUTIONS AND LIMITATIONS 405
5.6.1 Contributions to Comparative Political Economy 405
5.6.2 Limitations of This Study 409
5.7 CONCLUSION 413

BIBLIOGRAPHY 415

APPENDIX A: FIELD RESEARCH ACTIVITIES, 2005-2008 438
APPENDIX B: NEDO’S MAJOR R&D PROJECTS IN 2008 440
APPENDIX C: NEDO’S 65 PROTOTYPE ROBOTS 447
APPENDIX D: IRS’ 50 RESCUE ROBOT SYSTEMS 450

vi
LIST OF TABLES

Table 1-1: Means and Artificial Market Forces of Current Japanese 34
Industrial Policy

Table 2-1: History of Japanese Industrial Policy, 1950s-Current 66
Table 2-2: Industrial Policy Related Legal Establishments in the Post-Bubble 99
Era

Table 2-3: Hub Organizations in Carrying out Industrial Policy Functions in 103
the Post-Bubble Era

Table 2-4: Loan Guaranty Provided by SMRJ 115
Table 3-1: World Robot Population, 1978-1982 128
Table 3-2: Installations and Operational Stock of Industrial Robots, 135
2002-2004

Table 3-3: World’s Top 10 Robot Makers in 2007 138
Table 3-4: International Competitiveness in Robot Applied Technology 140
Table 3-5: International Competitiveness of Robot Element Technology 141
Table 3-6: International Robotics Comparison 143
Table 3-7: International Research Priorities in Robotic Vehicles 145
Table 3-8: Comparative Analysis of International Programs in Robotic 146
Vehicles

Table 3-9: Qualitative Comparison in Space Robotics Vehicle 146
Table 3-10: Important Development of World Robotics 149
Table 3-11: Changes of Japan’s Robotics Technology 160
Table 3-12: Types of NEDO’s Support R&D Projects 168

vii
Table 3-13: Phase I & II of HRP Program 172
Table 3-14: Projects of the 21
st
Century Robot Challenge Program 184
Table 3-15: NEDO’s 9 Practical Robot Systems 188
Table 3-16: Tri-Use Robotics Technologies 195
Table 3-17: Japan’s Annual Robot Award from 2006-2008 201
Table 3-18: Diversification Development of Japan’s Next-Generation 207
Robotics

Table 3-19: Six Example Robots of Diversification Development 208
Table 3-20: Japan’s Future Weapon System Technologies 214
Table 3-21: TRDI’s Power Assist Equipment Related Technologies 220
Table 3-22: Total Area of Unmanned Helicopter-operated Dust Cropping 233
Table 3-23: Number of Registered Unmanned Helicopters (in units) 233
Table 3-24: Number of Operators for Unmanned Helicopters (in persons) 234
Table 3-25: Four Major Government Rescue Robotics Projects Assigned 240
to IRS

Table 3-26: Brief History of Urashima UUV 260
Table 4-1: Japan’s Licensed Production Aircrafts, 1953-2006 273
Table 4-2: Japan’s Licensed Production Engines, 1961-2005 273
Table 4-3: Japan’s Indigenous Aircrafts, 1953-2002 280
Table 4-4: Japan’s Indigenous Engines, 1962-2006 282
Table 4-5: Japan’s Joint-Production Aircrafts, 1982-2008 287
Table 4-6: Japan’s Current Major Indigenous Aircraft Development Projects 338
Table 4-7: MRJ Suppliers and Partners 343

viii
Table 4-8: Specifications of MRJ 90 & 70 348
Table 4-9: MRJ’s Major Competitors (Price in million USD) 358
Table 5-1: Artificial Markets in Japan’s Robotics and Aircraft Industries 388
Table 5-2: Comparison of Japan’s Robotics and Aircraft Industries 391
Table 5-3: Market Failure Mentality and Industrial Structure 409

ix
LIST OF FIGURES

Figure 2-1: Japan’s S&T Promotion System Pre- (Above) and Post-2001 100
(Below)

Figure 2-2: NEDO’s R&D Promotion Scheme 104
Figure 2-3: Institutions of New AIST 106
Figure 2-4: AIST 2007 Revenue (in Million JPY) 107
Figure 2-5: Staff of AIST in 2009 107
Figure 2-6: AIST-Innovation Center for Startups 111
Figure 2-7: Three Major Business Resources Provided by SMRJ 114
Figure 2-8: ISIF Loan Guaranty Scheme 115
Figure 3-1: Operational Stock of Industrial Robots, 2002-2007 136
Figure 3-2: Japan’s Robotics Industry Output and the Ratio of Export, 137
1991-2005

Figure 3-3: Talon Military Robots with Different Applications 152
Figure 3-4: QinetiQ North America MAARS Robot 154
Figure 3-5: General Atomics Aeronautical Systems MQ-1 Predator UAV 155
Armed with Hellfire Missiles

Figure 3-6: Northrop Grumman RQ4 Global Hawk UAV 156
Figure 3-7: Predicted Growth of Japan’s Next-Generation Robotics Market 163
Figure 3-8: Japan’s Next-Generation Robotics Promotion Organization 167
Scheme

Figure 3-9: NEDO’s Merit-Review Project Selection Process 168
Figure 3-10: HRP-1 Humanoid Robot 171

x
Figure 3-11: HRP-2 Humanoid Robot 176
Figure 3-12: HRP-3 Promet MK-II Humanoid Robot 179
Figure 3-13: Remote-Controlled Cockpit of HRP-3 Robot 180
Figure 3-14: HRP-4C Humanoid Robot 182
Figure 3-15: METI's Technology Roadmap of Japan's Next-Generation 185
Robotics

Figure 3-16: Integrated Robotics Industrial Cluster in Osaka 199
Figure 3-17: Japan’s Overall Organization Scheme in Diversifying 210
Development of Robotics Technology and Transferring to
Military Applications

Figure 3-18: Japan’s Future Unmanned Defense System 212
Figure 3-19: HAL-4 & 5 Robot Suit 216
Figure 3-20: TRDI Power Assist Equipment for Leg Support 220
Figure 3-21: TRDI Power Assist Equipment for Entire Body Support 221
Figure 3-22: The U.S. SARCOS WEAR Robot Suit 223
Figure 3-23: 60cm Version of Kawada Portable UAV 224
Figure 3-24: TRDI Version of Kawada’s Portable UAV 226
Figure 3-25: Preprogram Semi-autonomous Flight for TRDI Portable UAV 227
System

Figure 3-26: Current Status and Future Perspectives of Japan’s Self-Defense 228
Aircrafts

Figure 3-27: TRDI’s Mid-scale UAV Carried by F-15 fighter 229
Figure 3-28: Yamaha RMAX G1 UAV 233
Figure 3-29: Japan’s Flying Forward Observation System (FFOS) 238

xi
Figure 3-30: Participants of IRS 240
Figure 3-31: The Kenaf Rescue Robot 243
Figure 3-32: Ground Station of Kenaf Robot 244
Figure 3-33: TRDI Portable Robot Prototype 247
Figure 3-34: Remote control system of TRDI Portable Robot 247
Figure 3-35: JST’s Autonomous Detection and Demining Robotics System 251
Figure 3-36: The Comet-3 Autonomous Demining Robot 254
Figure 3-37: JAMSTEC’s Urashima UUV 256
Figure 3-38: Urshima UUV’s Navigation System 258
Figure 3-39: Structure of Closed-Cycle Fuel Cell of Urashima UUV 259
Figure 4-1: F-86J Jet Fighter License-Produced by MHI 272
Figure 4-2: MHI F-104J Jet Fighter 274
Figure 4-3: MHI F-15J Jet Fighter 278
Figure 4-4: FHI T-1 Trainer 281
Figure 4-5: MHI F-1 Jet Fighter 282
Figure 4-6: Japan’s YS-11 Commercial Transport Plane 285
Figure 4-7: Japan’s Work Share in Boeing 767 289
Figure 4-8: Japan’s Work Share in Boeing 777 293
Figure 4-9: Work Share of V2500 Engine 295
Figure 4-10: Japan’s F-2 Fighter 299
Figure 4-11: Aerospace Industry Turnover of Major Countries, 2005-2006 307

xii
Figure 4-12: Breakdown of Japan’s Aircraft Industry Turnover from 1991 311
to 2006

Figure 4-13: Japan’s Work Share in Airbus A380 Project 327
Figure 4-14: Japan’s Work Share in Boeing 787 Project 329
Figure 4-15: Airbus A350 330
Figure 4-16: Japan’s Next-Generation Supersonic Transport (Image) 332
Figure 4-17: TRENT1000 and GEnx Engines 337
Figure 4-18: Mitsubishi Regional Jet (Image) 342
Figure 4-19: MRJ Capital Investors 342
Figure 4-20: Advanced Technologies Applied in MRJ 344
Figure 4-21: P&W PurePower PW1000G Engine 345
Figure 4-22: MRJ’s Flight Control System from Rockwell Collins (Image) 346
Figure 4-23: MRJ Materials Breakdown 347
Figure 4-24: MRJ Family General Arrangement 349
Figure 4-25: Market Estimation of 60-99 Seats Regional Jets, 1986-2025 350
Figure 4-26: NEDO Environment-Friendly Small Aircraft Engine 353
Figure 4-27: NEDO Advanced Flight Control System (Image) 353
Figure 4-28: Market Shares of Major Regional Aircraft Manufacturers, 356
1994-2016

Figure 4-29: Full Scale Model of ATD-X 360
Figure 4-30: IHI’s XF5-1 Turbofan Engine 361
Figure 4-31: Japan’s P-X Patrol/Anti-Submarine Warfare Airplane 365

xiii
Figure 4-32: Japan’s C-X Cargo Transport Airplane 366
Figure 4-33: Boeing’s AH-64 Apache Longbow Combat Helicopter 369

xiv
ABBREVIATIONS

AIDC, Aerospace Industrial Development Corporation
AIST, National Institute of Advanced Science and Technology
ANA, All Nippon Airways Co., Ltd.
ASEAN, the Association of Southeast Asian Nations
ATR, Advanced Telecommunication Research Institute International
BDL, Business Design Laboratory
CSTP, Council for Science and Technology Policy
CTDC, Civil Transport Development Corporation
DARPA, Defense Advanced Research Projects Agency (U.S.)
DBJ, Development Bank of Japan
DPC, Defense Production Committee
ESPR, Engineering Research Association for Supersonic Transport Propulsion
System

FAA, Federal Aviation Administration (U.S.)
FDMA, Fire and Disaster Management Agency
FHI, Fuji Heavy Industries
FILP, Fiscal Investment and Loan Program
FPTPF, Fluid Power Technology Promotion Foundation,
FRC, Financial Reconstruction Commission
FSA, Financial Supervisory Agency

xv
GAO, General Accounting Office (U.S.)
GE, General Electric Company (U.S.)
GECAS, General Electric Commercial Aviation Services (U.S.)
HRP, National Humanoid Robot Project
IADF, International Aircraft Development Fund
ICP, International Collaboration Project
IFR, International Federation of Robotics
IHI, Ishikawajima-Harima Heavy Industries
ILFC, International Lease Finance Corporation (U.S.)
IRS, International Rescue System Institute
ISIF, Industrial Structure Improvement Fund
JAAA, Japan Agricultural Aviation Association
JADC, Japan Aircraft Development Company
JAEC, Japanese Aero-Engine Corporation
JAL, Japan Airlines
JAMSTEC, Japan Agency for Marine Earth Science and Technology
JARA, Japan Robot Association
JAROL, Japan Robot Leasing Company Limited
JASDF, Japan Air Self-Defense Force
JASMEC, Japan Small and Medium Enterprise Corporation
JAXA, Japan Aerospace Exploration Agency
JDA, Japan Defense Agency

xvi
JDB, Japan Development Bank
JGSDF, Japan Ground Self-Defense Force
JIRA, Japan Industrial Robot Association
JMSDF, Japan Maritime Self-Defense Force
JRDC, Japan Regional Development Corporation
JSAI, Japanese Society of Artificial Intelligence
JSME, Japanese Society of Mechanical Engineers
JST, Japan Science and Technology Agency
JUAV, Japan UAV Association
JUCAS, Joint Unmanned Combat Air Systems (U.S.)
JWTC, Japan Welding Technology Center
KHI, Kawasaki Heavy Industries
LDP, Liberal Democratic Party of Japan
MAFF, Ministry of Agriculture, Forestry and Fisheries
MELCO, Mitsubishi Electric Corporation
METI, Ministry of Economy, Trade, and Industry
MEXT, Ministry of Education, Culture, Sports, Science and Technology
MHI, Mitsubishi Heavy Industries
MHLW, Ministry of Health, Labour and Welfare
MIC, Ministry of Internal Affairs and Communications
MITI, Ministry of International Trade and Industry
MLIT, Ministry of Land, Infrastructure, Transport and Tourism

xvii
MMC, Micro-Machine Center
MOD, Ministry of Defense
MOF, Ministry of Finance
MSTC, Manufacturing Science and Technology Center
MTU, Motoren-und Turbinen-Union (Germany)
NAMCO, Nihon Airplane Manufacturing Company
NASA, National Aeronautics and Space Administration (U.S.)
NEDO, New Energy and Industrial Technology Development Organization
NIBIB, National Institute of Biomedical Imaging and Bioengineering (U.S.)
NIC, National Intelligence Council (U.S.)
NRIFD, National Research Institute of Fire and Disaster
NSF, National Science Foundation (U.S.)
NSIAD, National Security and International Affairs Division (U.S.)
NTT, Nippon Telegraph and Telephone Corporation
P&W, Pratt & Whitney (U.S.)
PLA, People’s Liberation Army (China)
RSJ, Robot Society of Japan
SBIC, Small & Medium Enterprises Business and Consultation Co., Ltd.
SDF, Self-Defense Force
SJAC, Society of Japanese Aerospace Companies
SMRJ, Small & Medium Enterprises and Regional Innovation, Japan
TRDI, Technical Research and Development Institute

xviii
UN, United Nations
UNECE, United Nations Economic Commission for Europe
WTEC, World Technology Evaluation Center, Inc. (U.S.)
WTO, World Trade Organization

xix
ABSTRACT

Industrial policy has long been considered as one major contributor to
Japan’s postwar economic miracle. It characterizes Japan different to other
industrialized nations in terms of organizing its economy. However, the confusing
definition of industrial policy has made discussion difficult. I argue that industrial
policy is a product of Japanese elites’ market failure mentality. It simulates artificial
market forces to promote strategic industries in countering the structure constraints
for Japan as a late industrializer and lacks of natural resources. Moreover, the
postwar self-imposed weak military structure has affected Japan’s industrial
development and produced several problems. On the other hand, the elites’ market
failure mentality has also shaped the substance of Japan’s reforms in the 1990s.
Thus, the reforms have created many institutional innovations to enhance existing
institutions. As such, the post-bubble industrial policy has utilized these institutional
innovations to create more artificial market incentives in countering market
imperfections in Japan’s robotics and aircraft industries. In sum, for the existence of
market failure mentality and weak military market structure, Japan has adopted
different institutions and strategy on its way to prosperity.

1
CHAPTER 1: INTRODUCTION

1.1 INTRODUCTION
On August 4, 2005, a Russian submarine, AS-28, was trapped nearly 190
meters underwater by fishing nets during a combat training exercise in Berezovaya
Bay, 70 kilometers south of the Kamchatka Peninsula on Russia’s east coast, north of
Japan.
1
Russian authorities swiftly requested for assistance from Japan, the U.S., and
the U.K., to avoid repeating the Kursk nuclear submarine disaster in 2000, killing all
118 sailors aboard. As the accident location was close to Japan, Russia was
especially hoping that Japanese unmanned rescue robot could save the submarine.
Unfortunately Japan was not able to contribute to the rescue, despite possessing
highly advanced robotic technologies. Three days later, the British Navy arrived at
the Kamchatka Peninsula and brought a remote-control unmanned rescue robot, the
Scorpio-45, which was equipped with three cameras and cable-cutting equipments.
The robot was lowered at the site and immediately cut away the nets to save the
Russian submarine in less than four hours.
Why the world’s most advanced and largest robot-making country did not
have a “remote” robot to perform a simple military rescue mission? The crisis
embarrassed the “robot kingdom” and revealed its weakness in military robotics

1
Nikkei Shinbun, August 7, 2005.

2
technologies and applications. It also ignited a discussion on the government’s long-
term industrial policy and the development of Japan’s military-related industries.
This dissertation is about the changes of Japanese industrial policy in the
post-bubble era. I argue that industrial policy is a product of the Japanese elites’
market failure mentality based on a lack of natural resources and its position as a late
industrializer. Elites believe that market forces alone, especially in Japan where a
weak military market exists due to its peace constitution, can not correct the failures
and the government must intervene to assist producers. I argue that the market failure
mentality has affected the creation of Japan’s postwar institutional design and the
1990s’ reforms in countering market imperfections. This dissertation examines two
case studies: robotics and aircraft industries. It seeks to understand the guiding
ideology and institutional arrangements behind Japanese industrial policy. If Japan’s
postwar industrial policy was to promote exports for economic growth, what are the
goals of the Japanese government after comprehensive reforms of the 1990s?

1.2 CURRENT INDUSTRIAL POLICY DEBATES AFTER 1990s
After the burst of economic bubble in the late 1980s and a series of
regulatory reforms in the 1990s, the changes of Japanese capitalism, especially its
industrial policy, have generated wide range of conflicting views and debates in the
academic world. In general, there are two major camps of scholars: the convergence
and the non-convergence views. The convergence view scholars believe that Japan
needs to and is converging to the U.S. liberal market model in which resources and

3
capital are allocated by clear and undistorted market signals rather than established
relationships or government’s guidance. As such, the Japanese government can be
more accountable to its citizens and its economy can become more efficient and
competitive. On the other hand, the non-convergence scholars argue that even with
current reforms, the essential characteristics of Japanese capitalism will remain
unchanged for two major reasons. First, it is unchangeable because it is socially,
politically, and institutionally embedded. And second, there is no need to change
because it is the most efficient system to respond to the societal preferences of Japan.

1.2.1 Convergence View
Scholars holding this convergence view contend that with economic
stagnation over a decade and the government’s vigorous liberal reforms in various
areas since the 1990s, Japan has already abandoned its industrial policy practices and
is converging to liberal market capitalism in order to be more efficient and
competitive. Therefore, the Japanese state has no intention or regulatory power to
intervene in its economy as a whole. Moreover, Japan has been experiencing
fundamental economic model transformation from Japanese capitalism to liberal
market model. In general, this convergence contention is mainly based on four major
arguments.
The first argument is the economic maturity and globalization argument. It
asserts that Japan’s mature economy and the increasing globalization have largely
weakened the role of the Japanese state in the economy. The second argument is the

4
technological frontier. It points out that for Japan has already reached technological
frontier, the government finds it very difficult to implement any traditional industrial
policy or target any strategic industry due to the highly uncertain and unpredictable
development trajectory of high-tech industries. The third is the financial deregulation
argument. The implementation of liberal reforms and financial deregulation for more
than a decade has largely weakened the government’s financial redistribution
capability. The institutions arrangements of industrial policy which allowed the state
to work through the private financial system in shaping Japan’s industrial structure
no longer exist today. The last one argues that it was the market forces or Japan’s
unique luck created the economic miracle but nothing about its industrial policy.
Moreover, Japanese industrial policy is counterproductive to its postwar economic
and industrial development.

1.2.1.1 Economic Maturity and Globalization Argument
Cox and Koo point out that although Japanese industrial policy once worked
well for Japan to catch up with the Western countries, however, with Japan’s
economic maturity and the increasing globalization, Japan has to embrace “creative
destruction” (markets determine winners and losers), in order to increase its
adaptability and avoid protectionism.
2
As economy evolves, Japan can stay
competitive and industrial policy will not work. Similarly, Lindsey and Lukas

2
Michael W. Cox and Jabyeong Koo. Miracle to Malaise: What’s Next for Japan? Economic Letter,
Vol. 1, No. 1 (January 2006).

5
believe that the cause of Japan’s economic bubble lies with its failure to make the
transition from developmental state to a mature economy at the technological
frontier.
3
They assert that Japan needs to converge and is converging to liberal free-
market model in order to become more efficient and competitive. They further
suggest that Japan needs to move to a system in which capital resources are allocated
by clear and undistorted market signals rather than established relationships or
government policy. They criticize the revisionists’ mistake in believing that a
handful of government bureaucrats could out-think millions of private decision
makers and could pick "strategic" industries, and allocate capital in defiance of
market signals.
In addition, Andrew argues that in the world of globalization with increasing
economic integration and foreign direct investment, national boundaries are rapidly
disappearing.
4
This has severely complicated a government’s efforts to discriminate
between domestic and foreign firms when choosing which industries to target. Based
on his observation, Japan has abandoned its interventionist industrial policy and is
converging to the U.S. liberal market model to rely more on market forces for its
future development. Meanwhile, from international perspective, Kohno points out
that the trend of globalization has been pushing the transformation of Japan’s overall

3
Brink Lindsey and Aaron Lukas. Revisiting the “Revisionists”: The Rise and Fall of the Japanese
Economic Model, Trade Policy Analysis, No. 3, (July 31, 1998).

4
Dick Andrew. 1995. Industrial Policy and Semiconductors: Missing the Target. Washington, D.C.:
The AEI Press Publisher for the American Enterprise Institute.

6
industrial structure.
5
As Japan’s internationalization progresses and its economy
becomes integrated with the rest of the world, many Japanese private corporations
are seeking to internationalize themselves in order to compete in the global markets,
which has largely weakened MITI’s regulatory power. In addition, he further argues
that MITI was the first among the Japanese government departments to recognize the
international pressure to push for reform. Thus MITI firmly commits to liberalization
and deregulation ideology and possesses little regulatory power that controls entry
and exit of businesses in a designated industry.

1.2.1.2 Technological Frontier Argument
From industrial and technological perspectives, Noland concludes that Japan
is converging to liberal market economy and the role of government in the economy
is declining.
6
He contends that since the mid-1980s, the ability of Japanese economic
policymakers to employ their traditional instruments of industrial policy has been
increasingly circumscribed by changes in the domestic and international
environment. Therefore, Japan needs to and is transforming from a strongly state-
influenced model of economic development toward a more market-driven and
decentralized system which is more appropriate to Japan’s current position on the

5
Masaru Kohno, “A Changing Ministry of International Trade and Industry,” in Jennifer Amyx and
Peter Drysdale, eds. 2003. Japanese Governance: Beyond Japan Inc. London and New York:
RoutledgeCurzon.

6
Marcus Noland. Industrial Policy, Innovation Policy, and Japanese Competitiveness. IIE Working
Paper Series 07-4. Peterson Institute for International Economics (May 2007).

7
technological frontier. For instance, the 1995 Science and Technology Basic Law has
reformed the way science and technology policy was implemented. It emphasized
cooperation among national universities, public research institutions, and the private
sector, and recalibrated support across basic research, as well as applied research and
development. However, he further notes that Japan still faces some significant
challenges in encouraging innovation and entrepreneurship as Japan’s existing
system such as its legal framework still appears to put a greater emphasis on
cooperation rather competition and on diffusion rather than innovation.
Similarly, Andrew asserts that industrial targeting only works with continual
and incremental improvements in manufacturing technology.
7
He concludes that
Japan’s experience in the semiconductor industry has demonstrated that the
bureaucrats have little skill in directing research and development in technological
frontier industries. And no one understands better than the private firms that face the
rewards and punishments of competitive markets. Moreover, Callon criticizes the
government’s elaborate structures to promote cooperation in Japan’s high-tech
consortia, which are often nothing but a public show.
8
The seemingly cooperative
institutions mask an underlying reality of fierce competition and conflict interests
among private actors. From comprehensive surveys of Japan’s 1975 Supercomputer
consortium, the VLSI, the Fifth Generation Consortium, and TRON, he further

7
Dick Andrew. 1995. Industrial Policy and Semiconductors: Missing the Target. Washington, D.C.:
The AEI Press Publisher for the American Enterprise Institute.

8
Scott Callon. 1995. Divided Sun: MITI and the Breakdown of Japanese High-tech Industrial Policy,
1975-1993. Stanford, Calif.: Stanford University Press.

8
concludes that cooperation absolutely cannot be forced upon companies that
competing in the same industrial sector. In addition, he points out that when
cooperation in MITI-sponsored consortium does work, it is because competition
among private companies in relatively low-tech industries is not a major problem,
such as shipbuilding, coal, textiles, and consumer electronics. Moreover, a conflict of
goals and institutional priorities is to be expected when private firms and government
agencies become partners. And when this happens, government bureaucrats will tend
to stick to the original technological roadmap, as it makes better political sense.
From the same perspective, Fong also asserts that MITI’s VLSI project has
illustrated severe constraints in limiting the government’s power and influence over
intra-industry collaboration in Japan.
9
Based on his observation, the participated
firms proved unable to work together in collaborative R&D activities and most of the
work in VLSI project was overwhelmingly conducted by individual firms. The
“strong” Japanese state has failed to orchestrate a heavily targeted industry despite
the advantages it possessed in dealing with the domestic manufacturers, and despite
the industrial characteristics amenable to multiform collaboration. Little cooperation
and substantive technological exchange were enforced in the collaborative project
among private companies.
Furthermore, by studying Japan’s computer and semiconductor industries,
Fong tries to illustrate how shifts in international competition can induce changes

9
Glenn R. Fong. State Strength, Industry Structure, and Industrial Policy: American and Japanese
Experiences in Microelectronics. Comparative Politics, Vol. 22 No. 3 (Apr., 1990), 273-299.

9
and shape domestic policies, institutions, and government-industry relations.
10
He
argues that if the competitive gap between an industrial leader and a follower results
in generating structural differentiation in their political economic systems, then the
closing of that gap can also be expected to have the same domestic structural
consequences. In other words, for the successful follower, institutional arrangements
for catch-up become less effective and even dysfunctional, particularly in promoting
innovation and entrepreneurship necessary for pioneering advanced technologies, in
which the heavy-handed government intervention will roll back. Based on that logic,
the successful catch-up of Japan in both economy and industry will alter its political
economic arrangement which leads to a dramatic structural transformation and
largely diminish MITI’s intervention capabilities. And from the findings of his
empirical case study, Fong further demonstrates the steady decline of MITI’s three
major intervention capabilities. 1) MITI’s programmatic initiative for Japan’s major
research projects has shifted from top-down strategic ministerial directives to
bottom-up industry pressures and/or lower-level bureaucratic incrementalism. 2)
MITI’s industrial targeting has changed from focusing on commercializable
industries to broader basic/fundamental technologies with uncertain commercial
payoff. 3) MITI’s selection of firms for support has shifted from exclusive a few to
broader range of firms including non-Japanese firms.

10
Glenn R. Fong. Follower at the Frontier: International Competition and Japanese Industrial Policy.
International Studies Quarterly, Vol. 42, No. 2 (Jun., 1998), 339-366.

10
Similarly, Saxonhouse contends that the highly uncertain nature of high-tech
industries and with Japan at the technological frontier have significantly increased
difficulties of MITI’s industrial targeting and in maintaining even a semblance of its
coordinator role.
11
Under the circumstance, there is clearly little reason to believe
that the government is better informed on which way to go (in terms of technological
and industrial development direction) than the private sector. In addition, he points
out that the Japanese government has promoted unrealistic or overly ambitious
projects and seriously misread technological trends in project after project. For
instance, the reaction of Japan’s large computer manufacturers to the highly risky
Fifth Generation project was extremely negative. And participation in the joint
project might result in losing critical proprietary information. Thus, he concludes that
the Japanese government promotion role in technological and industrial advancement
is no longer either possible or necessary in the face of technological maturity.

1.2.1.3 Financial Deregulation Argument
Moreover, based on Saxonhouse’s observation, with Japan’s financial
deregulations, the industrial policy institutions of 1950s–1970s which allowed the
government to work through Japan’s private financial system in shaping its industrial
structure no longer exist today. The 1990s liberal reforms have allowed most
Japanese firms to draw on far more diverse sources of finance from both domestic

11
Gary R. Saxonhouse. What’s All This about Japanese Technology Policy? Regulation: The Cato
Review of Business and Government Vol. 16, No. 4, (Fall, 1993), pp. 38-46.

11
and overseas. It has removed both the need and means of government intervention in
Japan’s economy and industry. For instance, with vigorous market reforms, Japan’s
banks and financial institutions are now forced to compete with many other financial
institutions both at home and abroad, which is no longer suitable to follow the
government’s guidance in shaping Japan’s industrial structure.

1.2.1.4 Nothing about Industrial Policy Argument
Some other scholars believe that industrial policy contributed nothing or very
marginal effects to Japan’s postwar economic miracle. Even some scholars criticizes
industrial policy is actually counter-productive to Japan’s economic development by
such as protecting losers, limiting competition, and allocating resources by political
factors. They believe that it is actually the market forces, international competition,
stable macroeconomic policy, favorable international environment, and private-led
production techniques innovations, and easy catch-up contributed to Japan’s
economic miracle.
For example, Sakoh argues that the secret of Japan’s postwar miracle can be
explained by the simplest terms, namely a basically free-market economy with
minimal government intervention, long-term political stability, certain favorable
international conditions such as inexpensive raw materials (especially petroleum),
stable and open international markets for Japanese goods, readily available foreign
technology, and sound macroeconomic policy (such as a small and balanced budget,
low and stable interest rates, low rates of taxation, stable prices), as well as minimal

12
defense and social welfare expenditures.
12
He further points out that since the
bureaucrats do not posses better knowledge about future economic and industrial
headings than the private sector, the majority of Japanese business executives could
not afford to operate their business by close consultations with the state, especially in
the face of existing fierce competition both domestically and internationally.
Similarly, Patrick also asserts Japan’s postwar success was the result of the risk-
taking entrepreneurship and large amount of private investment of Japanese firms.
13

And the main role of the government was to provide an accommodating and
supportive environment for the market, rather than providing leadership or direction.
Following the same logic, Lindsey and Lukas argue that postwar Japan’s
rapid ascent was primarily achieved by the private sector’s superior innovation and
continuous improvement in manufacturing techniques such as just-in-time inventory
management and lean production system, but not some MITI industrial policy or
government intervention.
14
In addition, Japan was playing technological catch-up
with the West in a good old-fashioned market environment with low taxes and low
government spending.
On the other hand, based on Porter’s observation, there are two starkly
different groups of industries in Japan: one group of backward industries with

12
Katsuro Sakoh. Japanese Economic Success: Industrial Policy or Free market? Cato Journal Vol. 4,
No. 2, (Fall 1984), pp.541.

13
Hugh Patrick. Industrial Policy: A Dissent. Brookings Review, (Fall 1983), pp. 3-12.

14
Brink Lindsey and Aaron Lukas. Revisiting the Revisionists. Trade Policy Analysis No. 3, (July
1998).

13
restricted competition and lower level productivity and not international successful
such as chemicals, civil aircraft, software, construction, retailing and transportation;
the other group of advanced industries with fierce internal competition and
internationally successful such as automobiles, consumer electronics and robotics.
15

Porter concludes that the Japanese case does not reveal a new and more effective
form of capitalism, but instead, confirms a positive relationship between competition
and prosperity. Moreover, Andrew further criticizes the interventionists’ false
reasoning of using sweeping generalizations to mask Japan’s true economic
performance and neglect to look at the much more costly failures of government
interventions in industries such as steel, aluminum, aircraft, computer, and
biotechnology.
16
He concludes that government intervention is doomed to fail
because bureaucrats can not outsmart private market, even with various industrial
policy instruments such as subsidies, support entry, promote export, subsidies to
exploit external economics, and joint R&D projects.
Similarly, Noland points out that Japan was well-positioned behind the
technological frontier defined by the U.S. and was essentially engaged in catch-up
along a reasonably well-defined industrial path for rapid economic growth in the

15
Michael E. Porter and Mariko Sakakibara. Competition in Japan. Journal of Economic Perspectives
18, 2004, No. 1: 27-50; Michael E. Porter and Mariko Sakakibara. Competing at Home to Win
Abroad: Evidence from Japanese Industry. The Review of Economics and Statistics. Vol. 83, No. 2,
(May, 2001), pp. 310-322.

16
Dick Andrew. 1995. Industrial Policy and Semiconductors: Missing the Target. Washington, D.C.:
The AEI Press Publisher for the American Enterprise Institute.

14
postwar era.
17
He mentions that as evidence of a lack of overall policy coherence and
most resource flows went to large and politically influential backward sectors in
Japan suggesting that political economic considerations may be central to the
apparent ineffectiveness of its industrial policy. It is resulting from the conflicts
between competing ministries and different self-interested political actors. In
addition, the negative effects of Japanese industrial policy include corruption
encouraged by the policy-instigated creation and distribution of rents, and a
bureaucratization of Japan’s banking function encouraged by the financial sector
repression and directed capital allocation policies. In addition, Bartlett argues that
Japan’s industrial targeting is merely a new justification for old-fashioned
protectionism.
18
There is little data to show that infant industry protection work or
the declining industries ever restructure themselves during government’s protection.
Moreover, these industries continue with their decline anyway since they have lost
their comparative advantage in the market, and at substantially higher cost to the
economy with government protection.

1.2.2 Non-Convergence View
On the other hand, non-convergence scholars speculate that although Japan
has suffered from economic stagnation for over a decade and is undergoing some

17
Marcus Noland. Industrial Policy, Innovation Policy, and Japanese Competitiveness. IIE Working
Paper Series 07-4. Peterson Institute for International Economics (May 2007).

18
Bruce Bartlett. Trade policy and the Dangers of Protectionism, in Chalmers Johnson, ed. 1984. The
Industrial Policy Debate. San Francisco, CA.: Institute for Contemporary Studies. pp. 159-172.

15
regulatory reforms, the essential characteristics of Japanese capitalism will remain
unchanged. Its industrial policy practices will still exist with new institutional
arrangements and mechanism designs to better fit in Japan’s current environment.
Their arguments are mainly based on Japan’s embedded institutions, which can best
respond to the societal preferences. In addition, there are two different sub-groups
among the non-convergence scholars. One believes that industrial policy should not
take the blame for the fall of Japanese model but the government’s mismanaged
macroeconomic policy. The other accepts the inadequateness of industrial policy at
Japan’s current stage, namely the mature economy, technological frontier, and
globalization. However, they argue that due to the unique regime characters,
Japanese capitalism is not under fundamental transformation or converging to the
U.S. model.

1.2.2.1 Industrial Policy Still Works for Japan Argument
Chang casts strong doubts and criticizes the convergence arguments of
exaggerating the impacts of globalization and the additional constraints on industrial
policy from the World Trade Organization (WTO) regime since it is still an evolving
system.
19
And the restrictions on the use of subsidies in the regime are not as binding
as suggested. He further suspects the possibility that globalization will truly turn
private firms into “transnational” corporations without a “home base” in the

19
Ha-Joon Chang. 1999. Industrial Policy and East Asia: The Miracle, the Crisis, and the Future.
University of Cambridge.

16
foreseeable future. In addition, he argues that globalization is a trend that can be, and
has been reversed, and it is not clear whether the current process of globalization will
make industrial policy impossible. In response to the mature economy argument,
Chang asserts that a more mature economy typically (if not always) has more
complex tasks at hand, but at the same time, it typically has better capabilities (both
at the governmental level and at the social level) to manage those tasks. Therefore, it
is not clear whether centralized coordination through industrial policy becomes
necessarily more difficult with economic maturity. Moreover, he further cast doubts
to the frontier argument by arguing that there is no reason why an intelligent
bureaucracy in close consultation with the private sector should not be able to
identify the broad trends and provide support for certain types of productivity-
enhancing activities.
On the issue of Japan’s structural failure, Johnson argues that it is the Plaza
Accord that brought down Japan’s economy after the government's overreaction.
20
In
response to the immediate cause of the slowdown, and the crippling of the banking
sector, the Japanese government chose to "grow" its way out of the problem. He
concludes that Japan’s problem is not economic but political as the Japanese
government has followed American advice too closely and wasted trillions of dollars
on construction projects during the 1990s. In contrary to conventional suggestion,
Johnson contends that Japan was not overregulated but under-regulated. For

20
Chalmers Johnson. Japanese “Capitalism” Revisited. JPRI Occasional Paper No. 22 (August
2001).

17
instance, in the late 1980s, the Ministry of Finance (MOF) exercised weak or
nonexistent supervision over the banks irresponsible lending to speculators. Then
during the 1990s, Japan failed to undertake serious reforms after the economic
bureaucracy's loss of autonomy to implement policies in the face of vested interests.
Johnson further concludes that Japan just cannot adopt American practices because it
would require a cultural revolution.
In addition, both Kodama and Lastres provide important counterpoint to the
convergence view.
21
They both highlight strong differences between the Japanese
and Western approaches and suggest that industrial policy remains alive and well in
Japan after the 1990s’ reforms. From researching Japan’s advanced material industry
and overall innovation system, Lastres concludes that Japan’s system is adaptable
enough to adjust to the shift in what she calls the “techno-economic paradigm.”
Thus, she argues, Japan is well positioned for work at technological frontier based on
two core arguments. First, the shift in the “techno-economic paradigm” provides
opportunities for new firms and industries with the state taking on technological
leadership. This type of paradigm revolution has occurred in Japan’s advanced
material industry in the past two decades. Second, the state and corporate institutions
are adaptable and play a key role in “orienting the economy towards the efficient

21
Kodama, Fumio. 1995. Emerging Patterns of Innovation: Sources of Japan’s Technological Edge.
Boston: Harvard Business School Press; Helena M. Lastres. 1994. The Advanced Materials
Revolution and the Japanese System of Innovation. New York: St. Martin’s Press.

18
development and assimilation of a new techno-economic paradigm.”
22
She concludes
that the institutional arrangements, but not unfettered market force, have been the
key to Japan’s technological accomplishments.
Meanwhile, Pempel focuses on how the Japanese model has changed over
time and to its respective strengths and weaknesses under different international
conditions.
23
He concludes that despite major structural reforms over the past decade,
Japan is still following its very distinct developmental state logic, that is, the use of
political choice in setting economic priorities and creating economic institutions. He
believes that the Japanese developmental state model has proven to be remarkably
flexible in adapting to both endogenous and exogenous sources of change. Similarly,
Schaede points out that while many of the Japanese reform measures seem to
resemble the U.S. liberal policies, however interestingly, both intent and effect are
quite different in Japan.
24
Rather than creating market parameters, the Japanese
government is, once again, attempting to influence the allocation of resources in its
growing/targeting industries.

22
Ibid.

23
T.J. Pempel. Revisiting the Japanese Developmental State. Association for Asian Studies Annual
Meeting, Japan Session 127: Industrial Policy Revisited: The State of Japan in the 21
st
Century,
(March, 2005).

24
Ulrike Schaede. Venture Capital as Industrial Policy. Association for Asian Studies Annual
Meeting, Japan Session 127: Industrial Policy Revisited: The State of Japan in the 21
st
Century,
(March, 2005).

19
1.2.2.2 Industrial Policy Does Not Work for Japan at Current Stage
In his study of Japan’s telecommunications industry, Tilton concludes that
Japan’s current problem lies in the difficulty of shifting from a developmental state
to a more fluid economy and the failure of its industrial policy in applying to a
mature economy and technological frontier for decades.
25
He further points out
industrial policy worked well for Japan to catch up with the Western advanced
economies, however, it has not been able to promote radical innovation, increase
efficiency, or lower domestic costs at current stage. In addition, the government’s
tendency in protecting troubled industries with emphasis on long-term relationship
for political reasons has largely sacrificed the strategic and flexible elements of
industrial targeting which was necessary to speed shift toward new competitive
industrial structure for Japan. In addition, Carlile and Tilton argue that Japan’s
regulatory reform is the social consensus between public and private elites to lower
the domestic costs of production and improve the competitiveness of domestic
industries, which has not done away with discretionary bureaucratic governance of
markets nor brought about true structural transformation such as adopting aggressive
antitrust policy to squelch private cartels.
26
Therefore the regulatory reform
movement must be understood as a corrective and complement to Japan’s system of
developmentalist capitalism rather than an attempt to overthrow it, which ensures

25
Mark C. Tilton. Nonliberal Capitalism in the Information Age: Japan and the Politics of
Telecommunications Reform. JPRI Working Paper No. 98, February 2004.

26
Lonny E. Carlile and Mark C. Tilton. 1998. Is Japan Really Changing Its Ways? Regulatory Reform
and Market Opening in Japan. Washington, D.C.: Brookings Institutions Press. pp. 1-16; 163-197.

20
that the regulatory reform is carried out in ways understood to benefit strategic
domestic manufacturing sectors.
From similar logic, Anchordoguy argues that Japan’s “communitarian
capitalism” places priority on broader social communitarian goals such as on
stability, predictability, national autonomy, order, and survival.
27
Thus, effectiveness
at reaching these goals has been considered more important than efficiency or profit.
And the state's legitimacy is contingent on maintaining social stability by preventing
large corporate failures, socializing risks, and maintaining high levels of
employment. However, Japan’s postwar institutions are no longer working under
current conditions in which technological change is rapid and unpredictable and
foreign products could no longer be legally reverse-engineered. Although Japanese
state institutions, policies, firms, and practices are becoming much more free-market-
oriented since the 1990s reforms, its political economic system remains
communitarian. In her recent book, Reprogramming Japan, on Japan’s
telecommunications, computer hardware and software, and semiconductor industries,
Anchordoguy also reaches the same conclusion that Japan has made slow and
incremental changes while its political economic system remains communitarian.
28

27
Marie Anchordoguy. Whatever Happened to the Japanese Miracle?. JPRI Working Paper No. 80,
September 2001.

28
Marie Anchordoguy. 2005. Reprogramming Japan: The High Tech Crisis under Communitarian
Capitalism. Ithaca, N.Y.; London: Cornell University Press.

21
1.2.3 Hybrid View
Scholars holding this view suggest that although Japan underwent many
reforms in the past decade, it still keeps its unique key elements of industrial policy
and has modified it selectively with new institutional arrangements and mechanisms.
In other words, Japan’s industrial policy still exists in the form of new institutional
arrangement and mechanism that are designed to better suit Japan’s current changing
environment. For instance, Anchordoguy asserts that Japan’s move from managed
markets to the more market-oriented approach with more reliance on free market
mechanisms, and consumer-friendly institutional convergence appears to be more in
form than substance.
29
She further points out that Japan is actually attempting to
make its own hybrid system with increased but managed competition and with
greater labor and capital mobility. Japan maintains its strengths of the “catch-up”
system and supplements it with additional liberal elements. Similarly, Miyoshi
argues that reforms are to decrease cost and increase efficiency by keeping Japanese
ethical aspects but implementing the U.S. logic reforms to reduce excessive
government intervention, correct structural defects such as lack of transparency and
competition.
30
Regardless of the success of these reforms, the unique features of the
Japanese ethical characteristics in its political economic arrangement remains

29
Marie Anchordoguy. Japan at a Technological Crossroads: Does Change Support Convergence
Theory? Journal of Japanese Studies, Vol. 23, No.2 (Summer, 1997), pp. 363-397.

30
Masaya Miyoshi. Japan’s Capitalism in Systemic Transformation. Columbia Business School,
Center on Japanese Economy and Business. Economic Deregulation: Challenge and Prospects for
Japan and Asia: Occasional Paper Series No. 29 (April 1997).

22
unchanged such as the traditions of powerful group-oriented tendencies, close
cooperation between the public and private community, and cooperative relations
between labor and management.
Some most recent researches on Japan’s 1990s reforms and its industrial
policy also show disagreement to the convergence view. For example, Lincoln
rejects the convergence view from comprehensively examining different aspects of
Japan’s current reforms such as economic and financial deregulation, government
reorganization, Japan Development Bank (JDB), the postal saving, Fiscal Investment
and Loan Program (FILP), small and medium business revitalization, bank
recapitalization, and a long list of current government’s industrial policies after the
1990s.
31
Moreover, his six main findings from surveying Japan’s reforms prove that
the role of Japanese government in its economy is actually increasing through
reforms. First, the entire reform process has been primarily centered on the
bureaucracy rather than legislative as the bureaucracy controls much of the relevant
information about Japan’s industries. Therefore, the possibility of innovation from
within is greatly lessened. Second, MITI came out of the 2001 administrative reform
with expanded functions such as telecommunications and industrial R&D. Thus, the
new super METI has greater capability to settle policy issues internally without

31
Edward J. Lincoln. 2001. Arthritic Japan: The Slow Pace of Economic Reform. Washington, D.C.:
Brookings Institution Press. pp. 153-200.

23
intervention from politicians or other ministries. In addition, the reforms of Japan
Development Bank (JDB), FILP, and the postal system appear to be cosmetic.
32

Furthermore, Lincoln points out that the government authorized 20 trillion
JPY in 1998 and an additional 10 trillion JPY in 1999 to provide massive political
popular lending to small business out of political motivation rather than pressing for
rapid balance sheet improvement in troubled banks. Fifth, the adoption of a
stockholder centered principal did not really change the corporate governance, and
the deregulation of foreign exchange is not clear to promote more competition in the
market. And the last, in 2001, Financial Supervisory Agency (FSA) and Financial
Reconstruction Commission (FRC) merged and became Financial Supervisory
Agency (new FSA) which splits the functions out of MOF and decrease power of
MOF. Moreover, MOF continues to maintain and exercise its influence on FSA by
amakudari (descending from heaven).
33
Another recent research by Vogel also reveals similar conclusion on Japan’s
1990s reforms and its industrial policy.
34
He argues that as bounded by existing
institutions’ incentives and constraints, both Japan’s public and private elites have
engaged in a fairly sophisticated process based on their own cost-benefit calculation

32
According to Lincoln, FILP as the financial resources in Japan’s economy over which the
government exercises direct control, lending them out for policy purposes, and in fact the outstanding
loans provided by government financial institutions was increasing.

33
Amakudari refers to the old boy network phenomenon that the early retired Japanese bureaucrats
“descend” from government positions to powerful and important positions in private enterprises,
banks, and public corporations.

34
Steven K. Vogel. 2006. Japan Remodeled: How Government and Industry Are Reforming Japanese
Capitalism. Cornell University Press. pp. 1-21.

24
in evaluating the relative costs and benefits of existing institutions and then designed
reform items to reduce the costs and enhance the benefit.
35
These calculations have
largely shaped the substance and trajectory of reforms, which have modified and
reinforced existing institutions rather than fundamentally transforming to liberal
market model. In addition, the incentives and constraints of existing institutions has
strongly affected the actors’ choice and shaped the reform in a much more active
way. They have enabled various types of institutional innovation based on existing
ties to forge new public-private partnerships to facilitate adjustment to changing
market conditions. In other words, Japan has embraced and redefined the U.S. liberal
model on its own terms in attempting to make its own hybrid. In measuring the
change of Japan’s industrial policy practices, Vogel concludes that although METI
has shifted goals from traditional industrial policy to espousing deregulation to
cultivate Japan’s market infrastructure and facilitate corporate restructuring, METI
still preserves its own authority and retains the very essence of the old MITI, namely
a deep commitment to promote Japanese economy and industry and to work closely
with private sector.
36

35
Vogel tries to incorporate norms and social ties into his three circles of rationality in a cost-benefit
framework: 1) Simple cost-benefit analysis, 2) institutional cost-benefit analysis, and 3)
social/reputational cost-benefit analysis.

36
According to Vogel, METI’s new industrial policy has the following changes: 1) seeking to upgrade
certain strategic technological capabilities rather than to promote specific sector or firms, 2)
promoting joint ventures and strategic alliances (especially with foreign corporations) rather than to
organize cartels, 3) revitalizing troubled companies with new financial techniques rather than
recession cartels, 4) spurring innovation by triggering private investment rather than guiding it
directly.

25
According to Yamamura, there are recent changes in Japan supporting
convergence view. These changes include the amendment of Antimonopoly Act for
firms to enter new ventures quickly and more open for better respond to market
forces, the promotion of international joint ventures for risk-sharing, the deregulation
in airline, taxi, and telecommunication/information industries, the reorganization of
MOF, the independence of Bank of Japan, the 1997 revision of Foreign Exchange
Control Law, and the financial reform allowing financial institutions to offer lower-
cost services and new products.
37
However, he points out that Japan’s economy is
still heavily regulated comparing to other industrialized economies. And Japanese
bureaucrats are still capable of implementing various procedural restrictions to the
deregulations. Most importantly, the fundamental characters of Japanese capitalism
are still deeply embedded in its existing institutions.
In sum, both arguments have their own strengths and weaknesses, from
which we could learn valuable lessons. The convergence theses provide us with
better understanding of the dark side and drawbacks of Japanese industrial policy by
highlighting its main weaknesses and limitations. In addition, they clearly point out
the possible impacts and changes to various aspects of Japanese capitalism brought
about by the decade-long and comprehensive liberal reforms. However, they miss
out at their analytical frameworks. First, the convergence scholars overrate market
forces and structural reforms’ impacts to alter both public and private sectors’

37
Kozo Yamamura. The Japanese Political Economy after the “Bubble”: Plus Ca Change? Journal of
Japanese Studies, Vol. 23, No. 2 (Summer, 1997), 291-331.

26
ideology and behavior and ignore the embedded characters of existing social
institutions.
38
And they neglect the fundamental differences in national preferences
such as the relative weight given by each nation to efficiency and equality. Second,
the convergence arguments also imply an ideological hegemony, namely the liberal
market capitalism or the U.S. model as the only correct path to prosperity.
In addition, their theses also fail to explain some recent developments in
Japan. Given the facts that that many industrial policies were flawed and inefficient,
why is the government still actively utilizing its industrial policy to target and
promote certain industries (including high-tech industries) in the face of
globalization, economic maturity, technological frontier, and high-tech oriented
economy? Is Japan or its economic bureaucrats irrational? And why is Japan’s
private sector still supporting the government’s interventions and in some cases even
demanding the state’s leadership and coordination function? What gives the state
room and legitimacy to intervene in the economic and industrial development?
Moreover, their theses fail to see development from a long-term structural
perspective. They have failed to point out that it is Japan’s unique postwar structure
functioning as a trap which keeps inviting government interventions and leaves room
for the government’s industrial policy in its economic and industrial development.
And last, they fail to conclude that any liberal efforts or attempts will result in
decorative modifications rather than fundamental transformation.

38
Ibid.

27
On the other hand, the non-convergence scholars correctly point out the
essential and embedded elements of Japanese capitalism resulted from the unique
mentality from historical, cultural, economic, political, social, and national security
considerations. As such, they further conclude that the essential characteristics of
Japanese capitalism will remain unchanged and the current undergoing regulatory
reforms should be understood as attempts to make its system more efficient and
better fit in Japan’s current dynamic environments by reorganizing institutions and
redesigning mechanisms in distinctive Japanese terms. However, their suggestions
also have drawbacks. First, their arguments underestimate the market force and
overestimate the state’s capability in shaping the economy and society as a whole.
39

In addition, they neglect possible impacts and changes to Japan’s political economic
arrangements brought about by the comprehensive liberal reforms. And last, they fail
to point out which essential elements of Japanese capitalism are unchangeable and
the exact structural factors making them unchangeable.
Thus, one obvious problem in current literatures is the confusing definition of
industrial policy. This has made academic discussion difficult, while generating
more debates in Japanese political economy and industrial policy studies. As
Johnson points out, “industrial policy is a complex and controversial subject because
it can mean anything from economic welfare to the ad hoc consequences of

39
Ibid.

28
uncoordinated governmental regulatory decisions.”
40
Thus, these scholars present
their ideas based on different definitions and perceptions of Japanese industrial
policy. Neo-classical scholars treat industrial policy as a synonym of economic
policy and use statistical measurements as well as quantity data to examine the
efficiency of industrial policy in promoting certain industry. They conclude that the
revisionists wrongly make causal conclusions on the contributions of industrial
policy based on limited case studies and without carefully examining key economic
variables. However, for revisionists, Japanese industrial policy is not only out of
economic rationality per se, but also with wide range considerations in political,
social, and even national security perspectives. For them, the right question is not
about economic results of industrial policy but the overall social returns to the nation
as a whole.
According to Krugman and Chang, the confusing definition of industrial
policy has further produced more problems in conducting Japanese industrial policy
related researches and discussion.
41
In response, I suggest to redefine Japanese
industrial policy as a product of market imperfections and market failure mentality of
Japan’s unique historical background. It is based on three academic traditions. First,
Rodrik (2007) suggests to “normalize” industrial policy. The second tradition is to

40
Chalmers Johnson, ed. 1984. The Industrial Policy Debate. San Francisco, CA.: Institute for
Contemporary Studies. pp. 11-14.

41
Paul R. Krugman. 1983. Targeted Industrial Policies: Theory and Evidence. in Industrial Change
and Public Policy. A Symposium Sponsored by the Federal Reserve Bank of Kansas City. Jackson
Hole, Wyoming August 24-26, 1983. pp. 123-155; Ha-Joon Chang. 1999. Industrial Policy and East
Asia: The Miracle, the Crisis, and the Future. University of Cambridge.

29
trace the original Japanese historical context for industrial policy as Johnson and
Samuels (1984; 1994) highlight. And the last is to understand Japanese market
failure mentality as Rodrik (2007) asserts.
First, industrial policy is a normal government policy function in stimulating
specific economic activities and further promotes structural changes in seeking for
overall national development. Rodrik suggests that the way to move forward from
current debates is to understand that industrial policy is nothing special; it is just
another government task that can vary from routine to urgent depending on the
nature of growth constraints a country faces.
42
As such, industrial policy is not about
“industry” per se, industrial policy is just like other government policies in education
and social welfare areas.
In addition, Japanese industrial policy was resulted from the long-term
development of Japanese history in striving for economic independence and national
autonomy by emphasizing the critical role of technological and industrial
development in generating wealth, strengthening national security, countering
structural constraints and promoting needed structural transformation. Johnson
asserts that the contemporary history of industrial policy is the epitome of Japan’s
history in seeking national autonomy back from Meiji era.
43
When Japan began to
industrialize, it did not have the tariff autonomy therefore the government had to take

42
Dani Rodrik. 2007. Normalizing Industrial Policy. Harvard University.
http://ksghome.harvard.edu/~drodrik/Industrial%20Policy%20_Growth%20Commission.pdf

43
Chalmers Johnson, ed. 1984. The Industrial Policy Debate. San Francisco, CA.: Institute for
Contemporary Studies. pp. 11-14.

30
a direct hand in economic development in order to achieve economic independence
and national autonomy that most Japanese strongly desired. For that purpose,
industrial policy was a necessary and indispensable mean to transform the overall
structure. At the same time, Samuels also traces the origin of Japan’s “techno-
nationalism” back to Meiji restoration.
44
He argues that the sense of insecurity and
vulnerability drives Japan to see technological prowess as first priority to generate
wealth, security, and autonomy. Japanese leaders understood that economic strategy
is at least as important as military power, and that technology provides distinct
advantages in both spheres. Technology is the basis for industrial success, which in
turn yields wealth and the capacity to produce effective military equipment.
Industry-based wealth also means invulnerability to outside pressure resulting in
autonomy.
Third, Japanese policy reflects strong Japanese market failure mentality. That
is, Japanese elites do not see development as an automatic process and they believe
market imperfections will further hinder needed structural transformation if the
institutions remain passive. Rodrik asserts that the market failures blocks structural
transformation and economic diversification and at the same time provides a role for
the government and its industrial policy.
45
Thus, economic development is not an

44
Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the Technological
Transformation of Japan. Ithaca: Cornell University Press.

45
Dani Rodrik. 2007. Normalizing Industrial Policy. Cambridge: Harvard University.
http://ksghome.harvard.edu/~drodrik/Industrial%20Policy%20_Growth%20Commission.pdf

31
automatic process and the market imperfections have to be seen as part of what it
means to be underdeveloped.
Thus, from these three traditions, Japanese industrial policy is defined as a
series of government actions to simulate market forces in order to promote certain
strategic technologies and industries in countering structural constrains and market
imperfections, as well as transforming overall market structure in seeking for
national development, security, and autonomy as a whole. In sum, redefining
Japanese industrial policy is a necessary step and an important foundation for further
academic discussion on Japan’s political economy studies. Therefore these three
academic sources together, namely normalizing industrial policy as one of
government’s regular functions and activities, putting it back to the original Japanese
historical context, and looking for the dominating ideology/mentality of both public
and private elites, can provide us with a starting point and analytical framework for
advancing Japanese political economy researches.

1.3 ANALYTICAL FRAMEWORK: JAPANESE MARKET FAILURE
MENTALITY

1.3.1 Japanese Market Failure Mentality Theory
This dissertation uses cultural analysis model as the main analytical
framework, which focuses on patterns of beliefs, values, symbols, and habits as the
causes of formal institution differences such as policy and government organizations.

32
I argue that there is a set of shared beliefs, values, and attitude, what I call market
failure mentality, among three major Japanese elites groups (bureaucrats, politicians,
business) in guiding the formulation and exercises of Japan’s formal political
institutions such as its industrial policy.
Thus, I define Japanese industrial policy as a product of market failure
mentality, which aims to counter structural constrains and market imperfections by
promoting strategic technologies and industries in order to seek national
development, security, and autonomy as a whole. More specifically, industrial policy
is a series of government actions to simulate artificial markets and market forces in
order to promote strategic industries that, both public and private elites believe, are
critical to Japan’s national development. At the same time, the market alone cannot
correct its own failures. As such, my theory suggests that Japan’s current industrial
policy is trying to simulate artificial markets (including military markets) both in
terms of quality (such as R&D direction/incentives and technological applications,
trial and error learning) and quantity (such as market demand, profit incentives, and
economy of scale) in order to achieve three major goals: 1) economic growth and
expansion, 2) providing R&D incentives and direction as well as industrial
integration capability for further technological development and structural
transformation of industry, and 3) national security. Here, “artificial markets” are
markets that created by industrial policy, rather than market forces, in various forms
such as subsidies, loans, national R&D projects, public procurements, institutional
arrangements, legal establishments, and policy manipulations in simulating six major

33
market forces of a competitive market, namely market demand and profit incentives,
R&D direction, economy of scale, market competition pressure, trial and error
learning opportunity, and innovative concepts (Table 1-1).
Thus, possible market failure further invites and legitimizes government
interventions in Japan’s economic and industrial development. Through
institutionalized communication and negotiation, Japan’s public and private elites
form consensus and design industrial policy to simulate artificial market forces. In
addition, it is not only with economic rationality but with broader considerations in
social, political, technological, and national security in maintaining the nation’s
stability, security, and autonomy. Therefore, the government can play either strong
or weak role depending on the particular industrial structures and settings of a given
industry. As such, in contrary to the conventional wisdom suggesting that industrial
policy is active and proactive, Japanese industrial policy plays a responsive role in
correcting possible market failure by transforming market and industrial structure of
particular industries. It also plays supplementary role in supporting Japan’s overall
grand strategy.

34
Table 1-1: Means and Artificial Market Forces of Current Japanese Industrial Policy

Means Simulating Market Functions
Financial
Subsidies & Loans
1. Support private R&D activities on promising technologies
2. Support private participation in international joint projects
3. Support private firms to develop technological specialties
4. Provide R&D direction and attract private investment in R&D
5. Support technology transfer and creation of new joint venture
6. Attract private participation and investment in national R&D projects
Public Procurements 1. Provide Market demand and profit incentives
2. Provide R&D direction
3. Attract private investment
4. Provide economy of scale; trial and error learning
Institutional
Arrangements
National R&D Project
(with subsidies and loans)
1. Provide R&D direction and attract private participation in R&D
activities
2. Attract private investment in R&D
3. Tackle top-end technological challenges
4. Self-validate indigenous technologies
Hub Organizations 1. Provide technological and technical support
2. Provide communication channels, collaboration coordination
3. Provide Administrative assistance such as patent application
4. Promote technology transfer among public-private-academia-military
5. Provide commercial assistance such as creation of new joint venture
6. Promote transfer R&D results to mid- and low-stream private firms for
rapid commercialization
7. Initiate and implement national R&D projects on promising
technologies
Legal
Law Establishment &
Policy Manipulation
1. Law establishment to support private participation in international joint
R&D project
2. Policy manipulation to coordinate collaboration of public and private
3. Policy manipulation to coordinate collaboration of private firms
4. Policy to support developing technological specialty
5. Law and policy to create external technology sources
6. Policy to promote standardization

35
According to Pindyck Robert and Rubinfeld Daniel, market failure occurs
when the market’s function in allocating goods, services, and resources is not
efficient.
46
This inefficiency of the market provides the justification for government
policy interventions through taxes, subsidies, and regulations. From reexamining
Japan’s history and international contexts, the Japanese elites have formulated two
layers of market failure mentality. First, they believe that Japan is in disadvantageous
positions in the face of Western dominance or unfavorable market structure for
developing certain industries that are critical to its broader and long-term national
development. In addition, they do not see development as an automatic process and
also do not believe market forces alone can foster needed structural transformation
when market failure appears. They see market failure is a pervasive feature of
underdeveloped economy and the state has an important role to play in correcting it.
Problems remain when institutions are passive. As such, government leadership and
interventions are necessary in correcting these market failures for Japan’s future
development since the market forces alone are insufficient to provide incentives for
rapid development and structural transformation.
There are five main criteria of market failure mentality of Japanese elites
concluded from my fieldworks for this study. First, market can not fully provide

46
According to Pindyck and Rubinfeld, market failure means that prices fail to provide proper signals
to consumers and producers, so that the market does not operate as we have described. They assert
that competitive markets may be inefficient for four reasons. First, firms or consumers may have
market power in input or output markets. Second, consumers or producers may have incomplete
information and may therefore err in their consumption and production decisions. Third, externalities
may be present. Fourth, some socially desirable public goods may not be produced. Pindyck S. Robert
and Rubinfeld L. Daniel. 2001. Microeconomics. London: Prentice Hall International. p. 296; p. 614;
p. 651.

36
technological R&D direction and incentives to support “desired” development of the
nation as a whole. Therefore, the government has to provide artificial market
incentives in order to redirect R&D direction through industrial policy. Second,
market tends to promote over-competition rather than cooperation and focuses on
short-term individual benefit rather than long-term strategically national
development. This tendency often leads the problems such as wasting resources from
duplicate investment, inefficient R&D works from adopting different technical
specifications, and further prolongs the time for developing and applying new
technology for practical purposes. Thus, the government needs to provide policy
mechanisms in promoting cooperation in order to concentrate resources on desired
technological/industrial development. For example, in his speech to the 2006
METI/NEDO Robot Technology Strategy Map Conference (July 20, 2006), Mr.
Furutani Takeshi (METI’s Deputy Vice-Minister for Policy Coordination) points out,
The flaws of market have caused many problems such as wasting public and
private resources and technological development not heading toward the
“correct” direction. And that is exactly why METI has planned this Robot
Technology Strategy Map hoping to think, plan, and do together with the
domestic enterprises in order to concentrate all resources in developing more
adequate robotics technology for tomorrow’s society and Japan’s future
industrial and economic development. Therefore, METI will provide all
necessary supports for these purposes.
47

Similarly, in my July 20, 2006 interview with Mr. Shigeoki Hirai, Director of
the Intelligent Systems Research Institute of AIST, in METI’s Robot Technology

47
Mr. Hurutani Takeshi graduated from the Engineering Department of Kyoto University. He entered
MITI in 1980 and became METI’s Deputy Vice-Minister for Policy Coordination in June 2006. He
later became MEXT’s Deputy Vice-Minister for Policy Coordination in 2007 and amakudari to
NEDO in July 2008.

37
Strategy Map Conference, he said that, “Adequate market competition is good, but
too much competition will make lots of problems, such as wasting investment and
reduce profit,” and “It is the government’s basic function to solve this kind of
problems for its nation’s industrial development.”
48
Moreover, as manufacturers use
different specifications to develop their robotic systems, it has resulted in
considerable inefficiency in next-generation robots development. Thus, JARA, as the
primary representative of the private industry, states in its 2001 report, “All the
problems in current robotics development can not be solved by the market
mechanisms or private sector alone, but require strong government leadership,
interventions, and overall policy coordination.”
49
And in my June 16, 2006, interview
with Mr. Akaike Kazuhiko (Chief Researcher at the Machinery System and Robotics
Division of Kawada Industries), he points out that the existence of different
specifications from robot makers is always a major headache and money-wasting
cause in developing new robotic systems. In his words, “Without the government’s
policy coordination in integrating a standardized common platform, the problem will
remain at least 10 years, based on his estimation, and will largely delay the
development of Japan’s robotics industry.”
50

48
Mr. Shigeoki Hirai, Director of the Intelligent Systems Research Institute of AIST, is one of the
most important figures of Japan’s robotics industry and also the major promoter/executor of many
government’s next-generation robotics projects.

49
JARA. May 2001. Summary Report on Technology Strategy for Creating a “Robot Society” in the
21
st
Century, pp. 11-13.

50
Kawada Industries joined the Japanese government’s National Humanoid Robot Project (HRP) in
1998 with support from METI and NEDO, and took charge of developing robot hardware and was in

38
Third, market “sometimes” does not provide necessary competition pressure
due to the lack of profit incentives. Therefore, the government needs to provide
artificial market incentives to promote market competition for certain technologies or
industries. For example, MITI and NEDO have repeatedly used the technological
achievements of Honda’s Asimo as the imaginary target for its humanoid robot
project in numerous reports from 1998 to 2007.
51
In addition, the government has
showed strong belief that its collaborative project, which incorporated several
capable private makers, universities, and public R&D institutions, could resulted in
better humanoid robot and more technological breakthroughs than Asimo.
Fourth, market does not provide needed infrastructure, both hardware and
social infrastructure, for developing and introducing new technology/industry to the
society. As such, the government should cooperate with private sector in establishing
necessary hardware, business, educational, and regulatory infrastructure for further
development and practical use of new technology. And the last, market alone can not
correct the problems embedded in Japan’s unique market imperfection, i.e. the post-
war self-imposed weak military market structure which I will elaborate later in this
section. Japanese elites believe that this major market failure has placed Japan in
disadvantageous positions in the face of Western dominance or unfavorable market
structure for developing certain industries, such as aircraft industry, that are critical
to its broader and long-term national development. Thus, the government has to

collaboration with AIST for total specification design.

51
METI/NEDO Robot Technology Strategy Map Reports, 1998-2007.

39
supply the industry with needed institutional arrangements and artificial military
market incentives in order to direct the development of military-related industries
and maintain sufficient military-technological capabilities.
For example, JARA concluded that the lack of a healthy military market and
incentives has driven Japan’s robotics industry into current weaknesses, namely
strong manufacturing applications and weak military/extreme environment
applications.
52
The same report points out that due to the absence of national
technology policy and marketing schemes, extreme environment applications such as
nuclear, space, disaster prevention, and defense-related have not emerged and are
still very much at the laboratory stage. Thus, JARA also suggests that the
government should take a leading role in systematically promoting the development
of robotics technology.
53
JARA has further suggested that,
The government should take a leading role in systematically promoting the
development of technology of robot used under extreme environmental
conditions together with technical standards in this area. And the government
should actively promote a new approach of nurturing the robotics industry
with an infrastructure based on open technology foundations. Other policies
that the government should pursue include: development research programs
geared towards practical outcomes; promoting joint technology development
projects between private and academic sectors; creating systems for re-
training of engineers and for accreditation of qualifications; introducing tax
benefits designed to encourage the use of robots; promoting “social
infrastructure” investment; promoting entrepreneurial endeavor; and

52
JARA. May 2001. Summary Report on Technology Strategy for Creating a “Robot Society” in the
21
st
Century, pp. 5-6; 23-24.

53
Ibid.

40
encouraging public-sector research in fields such as nuclear power, space,
and disaster prevention in a bit to generate new markets.
54

Similarly, in response to the problems, MITI states in its 1999 Survey Report on the
Current Status of Robotics Industry,
In order to correct the problems resulted from Japan’s unique environment
and to satisfy social expectations, it is the government’s job to actively take
the role in consolidating private makers to avoid duplicate R&D and waste of
resources. The government should actively provide market incentives to
private makers in order to guide the further development of Japan’s robotics
industry for the 21
st
century.”
55

And in the development of Japan’s aircraft industry, METI believe that the
current government-initiated indigenous aircraft R&D projects can consolidate the
problematic and collapsing military aircraft industry. In several of its Aerospace
Consultative Council meetings, METI concludes that, “It is the government’s
inevitable responsibility to initiate and promote these indigenous commercial aircraft
projects to help the industry to overcome falling revenues from military aircraft
business under Japan’s unique defense environment.”
56
It believes that those
commercial aircraft projects can create technological spillovers to other industries,
including the military sector. As Nobuo Toda, President of Mitsubishi Aircraft
Corporation, said, “MRJ is not just meant to be a growth market for MHI, it is also

54
Ibid., pp. 5-6; 23-24.

55
MITI’s 1999 Survey Report on the Current Status of Robotics Industry.

56
METI’s Industrial Structure Shingikai Sub-meeting of Aerospace Industry on April 25, May 24,
June 13, and July 31, 2006.

41
important for the Japanese economy. This is not just a Mitsubishi program, it is a
Japanese program.”
57

Thus, the elites’ market failure mentality has impacted the formulation of
Japan’s political and economic institutions including government organizations,
government-business relations, public policy, and legal establishments. It appears in
three major concrete aspects of Japan’s political economy. First, big business
dominance, bank financing with state guidance, close government-business relations,
and often close cooperation with the state as mediator, characterizes Japan’s
organization of business. Second, the role of Japanese state includes direct state
control/manipulation in financial sector (especially banks), administrative guidance
in influencing private companies’ behaviors, amakudari bureaucrats network,
industrial policy in promoting particular industries/sectors, and producer-orientate
government policies. And last, Japan’s economic culture is characterized by
skepticism of free market, support for state intervention, paternalistic collectivism,
collective over individual values, and weakly inculcated (individual)
entrepreneurialism.
Moreover, this market failure mentality has been further reinforced by these
embedded formal institutions such as the education system, or more specifically the
national university system. Most of Japan’s public and private elites are from the
University of Tokyo and Kyoto University, which function as a mechanism for the

57
Nikkei Shinbun, March 31, 2008.

42
elites to share common understanding toward Japan’s history and political economy
in their early age of belief formulation. In addition, Japan’s national exam for public
servant, the seniority system, and amakudari practice have further made the elites
become more conservative and safeguard this shared mentality. In other words, the
informal and formal institutions have mutually-created and reinforced each other.
Political economy used to be seen as the investigation of the causes of
wealth, encompassing history, politics, and economics. Now it is usually understood
as the study of patterns of state-economy relations and their implications for
economic performance and political stability.
58
Political economy often focuses on
changes in patterns of state-economy relations. Put another way, it is the study of
how political institutions, the political environment, and the economic system
influence each other. For instance, Peter Hall and David Soskice assert that the
center of a nation’s economic and political outcomes is what they call strategic
interactions.
59
They believe that the factors conditioning such interactions are the
most important institutions distinguishing one political economy from another.
Hall and Soskice emphasize the importance of informal rules and
understandings to securing the equilibria in the many strategic interactions of the
political economy. They believe a set of formal institutions is a necessary
precondition for attaining the relevant equilibrium but does not guarantee that

58
Marc Allen Eisner. 1995. The State in the American Political Economy: Public Policy and the
Evolution of State-Economy Relations. Englewood Cliffs: Prentice Hall.

59
Peter A. Hall and David Soskice, eds. 2001. Varieties of Capitalism: The Institutional Foundations
of Comparative Advantage. Oxford: Oxford University Press.

43
equilibrium. It is a set of shared understanding which leads the actors to a specific
equilibrium in many instances. Thus, they expand the concept of institutions beyond
the purely formal connotations and define institutions as a set of rules, formal or
informal, that actors generally follow, whether for normative, cognitive, or material
reasons. They consider culture, informal rules, common understanding, and history
as an important component of the institutions making up a nation’s political
economy. In their words,
These shared understandings are important elements of the ‘common
knowledge’ that lead participants to coordinate on one outcome, rather than
another, when both are feasible in the presence of a specific set of formal
institutions. Many actors learn to follow a set of informal rules by virtue of
experience with a familiar set of actors and the shared understandings that
accumulate from this experience constitute something like a common culture.
This concept of culture as a set of shared understandings or available
‘strategies for actions’ developed from experience of operating in a particular
environment is analogous to those developed in the ‘cognitive turn’ taken by
sociology. The implication is that the institutions of a nation’s political
economy are inextricably bound up with its history in two respects. On the
one hand, they are created by actions, statutory or otherwise, that establish
formal institutions and their operating procedures. On the other, repeated
historical experience builds up a set of common expectations that allows the
actors to coordinate effectively with each other.
60

1.3.2 Japan’s Postwar Self-Imposed Weak Military Market Structure
In general, there are three types of Japanese market imperfections: late
developer for catch up, lack of resources (natural, financial, human, and
technological resources), and infant industry. For instance, Johnson argues that for

60
Ibid, pp. 12-14.

44
late industrializer, the state often takes on developmental functions regarding the
advancement of industrialization as a substantive social and economic goal.
61
It
defines the role of the government as taking whatever measures necessary to attain
the goal effectively. Thus, industrial policy is a necessary mean for the strong state to
pursue economic and industrial catch-up and seek economic development and
autonomy. In addition, the state further utilizes industrial policy to manage
competition, coordinate investment, pick winners to concentrate resources for
maximizing growth. At the same time, it protects losers to minimize social
disruption, and to channel financial resources to industrial investments for fast
adjustment of industrial structure in accordance to external environment in order to
become internationally competitive.
Moreover, postwar Japan has an additional unique market imperfection,
namely the self-imposed weak military market structure. Japan’s postwar weak
military market structure was first imposed by the Allied occupation’s
demilitarization policy to prohibit and prevent Japan from becoming a major military
power. This policy was followed by the establishment of the pacifist Constitution of
Japan with the famous Article 9 in setting a foundation for the weak military
structure for postwar Japan.
62
In 1950s, the U.S.-Japan Security Treaty and Yoshida

61
Chalmers Johnson, ed. 1984. The Industrial Policy Debate. San Francisco, CA.: Institute for
Contemporary Studies. pp. 7-11; Chalmers Johnson. 1982. MITI and the Japanese Miracle: The
Growth of Industrial Policy, 1925-1975. Stanford, California: Stanford University Press.

62
On May 3
rd
1947 with the push of the General Headquarter of the Supreme Commander for the
Allied Powers (G.H.Q.), Japan abandoned the Meiji Constitution (The Constitution of the Great

45
doctrine together have further passivated Japan’s overall defense attitude and
allowed Japan to construct its current self-imposed weak military market structure.
63

Japan’s decision was out of three main considerations: 1) to concentrate all resources
in economic and industrial development; 2) not to become a major military power
nor to allow its military (and military industry) to grow uncontrollably again; 3) to
maintain “sufficient” military capability.
Therefore from 1950s to 1970s, Japan had constructed its self-imposed weak
military market structure by six main measures following the Yoshida doctrine. The
first measure was to employ arms export control. The 1967 Three Principles on the
prohibition of arms export and its 1976 expansion have virtually prohibited all
Japan’s arms and military manufacturing capabilities export.
64
The second measure

Empire of Japan, Dai Nippon Teikoku Kenpo) and established the new Constitution of Japan
(Nihonkoku Kenpo). The article 9 of the new constitution is as “Aspiring sincerely to an international
peace based on justice and order, the Japanese people forever renounce war as a sovereign right of the
nation and the threat or use of force as means of settling international disputes. In order to accomplish
the aim of the proceeding paragraph, land, sea and air forces, as well as other potential, will never be
maintained. The right of belligerency of the state will not be recognized.” By this article, Japan
formally committed itself to a pacifist course.

63
The first U.S.-Japan Security Treaty was signed in 1951 and was revised as the new Treaty of
Mutual Cooperation and Security on January 19, 1960 in Washington. The Yoshida Doctrine was
asserted by Prime Minister Yoshida Shigeru in 1950s which placed highest national priority on
economic development, while simultaneously keeping a low diplomatic and military profile.
Yoshida's aim was to focus all available means on economic recovery after war while leaving Japan's
defense to the U.S.

64
Three Principles on the Prohibition of Arms Export were promulgated by Prime Minister Sato
Eisaku in 1967, which prohibit arms export to: 1) communist countries, 2) countries to which weapon
exports were prohibited by UN resolution, 3) countries involved in international disputes or countries
that might be involved in international conflicts. In 1976, these three principles were expanded by the
Miki cabinet as: 1) Japan does not export arms to countries on the 3 principles list. 2) As to other
countries, the Japanese Constitution and the spirit of related laws discourage exportation of the mean
of violence (weapons). And 3) Export of weapon production facilities is treated in the same way as
arms.

46
was to enforce the peaceful use of space. The 1967 Space Treaty and the 1969 Diet
Resolution had limited Japan’s space development exclusively in peace purposes and
civilian technology. The third measure was the nuclear prohibition. The 1967 Three
Non-Nuclear Principles and the 1971 Diet Resolution have prohibited Japan to
possess, manufacture, and introduce nuclear weapons into Japanese territory. Forth,
the government also established many restrictions on the use of military forces. The
1954 Self-Defense Forces Law and the 1957 Basic Policy for National Defense have
aimed to maintain an exclusive defense-oriented policy (prohibiting overseas troop
deployments and limiting weapon procurements to defensive systems as opposed to
offensive weapons), build up defensive capabilities within moderate limits, avoid
becoming a major military power, and maintain security agreement with the U.S.
Fifth, the government has maintained one percent GNP limitation on its defense
spending. In 1976, the Cabinet instituted a one percent GNP limitation on defense
spending. And sixth, the government decided to use economic bureaucrats to plan
and control the development of Japan’s defense industry. The Law for Enterprises
Manufacturing Aircraft and the Law for Manufacturing Weapons and Munitions
have placed jurisdiction of planning and regulating defense industry on MITI. These
two laws remain as the primary laws concerning defense procurement in Japan.
Thus, this weak military market structure had allowed Japan to concentrate
resources and capital accumulation for rapid economic and industrial recovery from
the war without heavy military burden. However, without a healthy military market
to provide market demand, profit incentives, scale of economy, R&D direction, trial

47
and error learning opportunity, and competition pressure, this postwar institutional
setup has also set a growth limit for Japan’s overall industrial and technological
development, strategy manipulation. It has seriously weakened Japan’s military and
industrial capabilities on the way of catching up and competing with the West since
1950s. For instance, when certain industries (especially defense-related and heavy
industries) mature or reach certain sophistication, they soon hit the bottleneck to
upgrade technological capability, improve integration ability, direct necessary R&D
and resources and expand economic spin-on and spin-off effects without the support
of a healthy military market in terms of quality and quantity.
65

First, with limited domestic military market and the absolute absence of
military export market, Japan’s military-capable makers such as Kawasaki Heavy
Industries (KHI), Mitsubishi Heavy Industries (MHI), and Fuji Heavy Industries
(FHI) have tended to concentrate on low-risk and profit-making markets and dual-
use technology (as the best solution to achieve economic development and maintain
military capabilities) rather than actively promoting military-unique and innovative
R&D activities. This tendency has greatly retarded their capabilities and distorted the
direction in upgrading Japan’s overall industrial and technological level, unlike the
military-industry complex in the West. In addition, Japan’s passive defense strategy

65
Spin-off effect refers to that the military spending can nurtures products, processes, and
organizational innovations, including national technological infrastructures, manpower training,
equipment, and indeed whole sectors and firms that transform and enhance the civilian economy.
Spin-on means that the transfer of civilian productions and process technologies to military
applications. Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the
Technological Transformation of Japan. Cornell University Press. pp. 1-32.

48
cannot provide a clear strategic R&D guideline and cannot function as an imaginary
ground in developing related technologies and fit-in-strategy weapon systems.
Moreover, these tendencies together have also weakened Japan’s capabilities in
accumulating know-how experience to develop overall military related industrial
technologies.
Therefore, upon recognizing the necessity of a healthy military market, this
weak military market structure has further invited and legitimized government
interventions in Japan’s economic and industrial development. Thus, MITI started to
utilize its industrial policy to simulate artificial markets (also military markets) both
in terms of quality (promote dual-use technologies by providing R&D
direction/incentives) and quantity (promote diversification development by providing
scale of economies, and profit incentives) in order to achieve three major goals: 1)
rapid economic growth and expansion, 2) maintain sufficient military capabilities,
and 3) promote industrial progressing and upgrading such as industrial integration
capability for further technological development.
Two best examples can demonstrate the corrective nature of Japanese
industrial policy. The first example is the licensed production of U.S. military
aircrafts as an important technology resource since 1950s. Japan’s licensed
production strategy has aimed to use the U.S. as its external market mechanism and
source for aircraft technology. That is, U.S. aircraft makers have to go through
conceptualization and design, R&D, trial and error experiments, and entering fierce
market competition for building competitive end products. However, Japan adopts

49
licensed production strategy to skip this market process and to learn directly from the
U.S. firms’ superior end products. Second, in July 1970, the Defense Agency
director general, Nakasone Yasuhiro, established the Kokusanka principles (domestic
R&D and production) to create stable domestic military market demand for major
makers in developing Japan’s defense industry.
66
These examples explain why
Japanese government keeps initiating cyclic inefficient (but effective to Japan’s
goals) industrial policies in promoting its aircraft industry by licensed production of
the U.S. aircrafts.
Nevertheless, Japan’s postwar self-imposed weak military market structure
has brought about impacts not only on its military, industrial and economic
development but also on its public policy practices and political economic
arrangements on its way to catch up and competing with the West since 1950s.
Therefore, I employ this market failure mentality and the postwar weak military
market structure as my main analytical framework to examine the development of
Japan’s robotics and aircraft industries. By doing so, I hope to shed light to some
possible implications on Japanese capitalism, especially industrial policy practices,
in the post-bubble era.

66
In July 1970, the Defense Agency director general Nakasone Yasuhiro established five objectives
for the defense industry that became the main guideline for Japan to develop its defense industry: 1) to
maintain Japan's industrial base for national security, 2) to acquire equipment from Japan's domestic
research and development and production efforts, 3) to use civilian industries for domestic arms
production, 4) to set long-term goals for research and development and production, and 5) and to
introduce competition into defense production.

50
1.4 RESEARCH APPROACH AND METHODS

1.4.1 Case Study Methods
I employ case study methods to answer my research questions and to gain
insight into how Japanese capitalism is changing. The study also aims to understand
whether such changes support or refute conventional wisdom on the limitations of
industrial policy as well as the economic, political, and institutional convergence.
This research uses various data and draws on numerous field research activities
including interviews of policymakers and business people, participant observations
of private firms, and document research on robotics and aircraft industries (industries
that the Japanese government is currently targeting). It attempts to provide a window
to how Japan’s political and economic elites are thinking in regard to positioning the
nation in the 21
st
century in science and technology and high-tech industries. It draws
on discussion about basic technology policies and funding levels, especially on how
to modify industrial policy, and the national innovation system (the network of ties
among universities, national labs, and firms). From this perspective of state and
business elites, we can predict the path Japan is likely to take as it works to solve
various political, social, and technological problems.
I chose these two cases for the following reasons. First, both of them are
believed to be promising technologies and are critical to Japan’s further development
in economy, industrial technologies and national security. The Economist in 2003
predicted that Japan’s future international competitiveness will depend on five major

51
industries and technologies, namely solar energy, aerospace industry, robotics, Nano
technology, and environment technology. In addition, major international mass
media, such as CNN (2006) and NHK (2006), had special reports on the current
development of robotics and aircraft industry, discussing their impact and
importance to world politics and economy as a whole. Second, both industries are
high value-added, technology spillover, and composite industries (need many
supporting technologies and have technological diffusion effect) and are highly
related to both economic development and national security. Therefore, we expect to
find more government role and intervention in these industries. Third, both robotics
and aircraft industries are military-related and hold different statuses in terms of
international competitiveness (Japan’s robotics industry is the world’s leader and
aircraft industry is still at catch-up phase). The differences between these two
industries enable us to compare and contrast in order to observe the different
government roles in their developmental strategies respectively and at the same time
to prove my working hypothesis.
From May 2005 to December 2008, I have conducted 49 in-depth interviews
and 24 participant observations with public organizations and government officials
in METI, MEXT, and MAFF, as well as representatives, scientists, engineers, and
project leaders in major hub organizations (such as AIST, NEDO, and MSTC),
related organizations (such as SJAC, JAXA, JADC, JAEC, and ESPR), and private
corporations such as Honda, Kawada, Toyota, Sony, NEC, Hitachi, Fujitsu,
Mitsubishi, MHI, FHI, and KHI for both robotics and aircraft industries (Appendix

52
A). They are currently the core organizations of both industries in Japan, and have
provided me with the most updated as well as important data and information for this
research.
67
I have also employed various forms of participant observations at METI,
NEDO, MSTC as well as their private partners such as Kawada, NEC, Mitsubishi,
Fujitsu, and Hitachi: participating in institutional activities, attending various
organizational meetings and conferences, and visiting different industrial sites, to
clearly understand the current status and progress as well as gather as much as
possible information and data of each industry.
For instance, in 2005 June, I attended the 2005 Japan Aichi World Exposition
(the 2005 World EXPO in Nagakute Town, Toyota City, and Seto City) and
observed (for one week) NEDO’s Robot Island as well as the Prototype Robots
Demonstration in order to obtain initial knowledge and information to understand
these two industries’ current status in terms of technological level and developing
direction, and to build my initial connection with NEDO. In the same year (from
June to September), I conducted my preliminary researches and interviews with
NEDO and Toyota Aichi EXPO staffs in Aichi, and NEDO, MSTC, Kawada, Sony,

67
For example, in robotics industry, AIST takes control of technical coordination and industrial
coordination of the government and its private partners’ robotics programs. NEDO has the functions
of planning and funding for both the government’s humanoid robotics projects as well as the
government’s supporting private projects. MSTC is in charge of the actual technological research for
the government’s humanoid robotics projects as well as co-research with private industries.

53
and Honda in Tokyo to collect necessary information and data of Japan’s robotics
and aircraft industries as well as building my further research references.
68

In 2006 summer (from May to August), I conducted more interviews with
NEDO and METI as well as collected more necessary information and data on the
new development in robotics and aircraft industries. In July, I was invited by NEDO
to participate at METI/NEDO’s Robot Technological Strategy Map 2006
conference.
69
On the same month, I had obtained an institutional affiliation with the
University of Tokyo, Institute of Social Science, which had provided me with an
office and more accesses to both public and private elites. In January 2007, I
presented my initial findings at Cambridge University, England, on Japan’s robotics
industry with the topic of “Revisiting Japan’s Industrial Policy: Case Study of
Robotics Industry.” The participants had provided me with suggestions, insights, as
well as further developing direction for this research.
From February to August 2007, I conducted more interviews and participant
observations with several core organizations of both industries such as METI,
NEDO, JARA, Tsukuba University, and MSTC. In 2008, I was based in Japan for

68
The following are some of my government references and contacts: in METI is Mr. Hiroshi
Tsuchiya (Deputy Director in Industrial Machinery Division), Dr. Shigeoki Hirai (Director in
Intelligent Systems Research Institute) in AIST, Dr. Yasuhiro Hashimoto (Chief Research Scientist in
Robot Technology Promotion Department) and Mr. Takahisa Mano (Deputy Manager in Technical
Research Department) in MSTC, and Mr. Kouji Kusada (Project Coordinator in Machinery System
Technology Development Department) in NEDO.

69
It is held together by NEDO and MSTC and supported by AIST and Japan Robot Association
(JARA). That conference provided me more direct information and data on the government’s current
policy toward robotics, and their efforts to integrate robotics technology with other
technologies/industries such as aircraft industry, automobile industry, and alternative energy, at the
same time, it also provided me the best chance to have more references for my future research.

54
entire year to further conduct more critical interviews and participate in many
important events of both industries such as the 2008 Japan International Aerospace
Exhibition in Yokohama, TRDI 2008 Defense Technology Symposiums in Tokyo,
2008 International Next-Generation Robot Fair in Osaka, and the annual Robot
Award 2008 in Tokyo. Since the end of 2008, I have come to finalize my field
researches in Japan and started to digest all the important data and information that I
have collected for the past three years and integrate into this dissertation.
In addition, I have supplemented my field researches with investigating and
collecting necessary government/internal data, documents and archives from all
related public and private organizations. For example in aircraft industry, I have
collected important data and information from SJAC, JAXA, JADC, TRDI, JDA
(MOD), METI, NEDO, MSTC, JAEC, MHI, KHI, and FHI. For robotics industry, I
have collected critical data and information from METI, NEDO, MSTC, AIST,
JARA, MEXT, MAFF, JAAA, IRS, JUAV, TRDI, JDA (MOD), JST, JAMSTEC,
Honda, Sony, Kawada, MHI, Yamaha, Toyota, Tsukuba University, and University
of Tokyo.
Moreover, I have also collect secondary sources such as newspapers,
professional journals, magazines, research reports from major international
organizations, and related published materials, both inside and outside Japan. For
instance, Nikkei Shinbun, Yomiuri Shinbun, NHK, the Economist, CNN, Aerospace
America, United Nations Economic Commission for Europe (UNECE) and
International Federation of Robotics (IFR) World Robotics Survey, Central

55
Intelligence Agency (CIA) World Factbook, JARA 2001 Robot Society in the 21
st

Century Report, U.S. Defense Advanced Research Projects Agency (DARPA), 2006
World Technology Evaluation Center, Inc. (WTEC) International Assessment of
Research and Development in Robotics report, U.S. National Intelligence Council
(NIC) 2008 Disruptive Civil Technologies: Six Technologies with Potential Impacts
on U.S. Interests out to 2025 report, Visiongain 2008 UAV Market Report: Forecasts
and Analysis 2008-2018 report, Visiongain 2008 Emerging UMV and UGV Markets
2008-2018 report, QinetiQ North America, Boeing, General Atomics Aeronautical
Systems, and Northrop Grumman.

1.4.2 Limitations of Case Study Methods
This research and its findings bear the traditional problem of generalization
posted by the case study method. Indeed, the studies of Japan’s post-bubble
industrial policy in robotics and aircraft industries in this research are peculiar in
Japan’s entire postwar economic and industrial development. Moreover, the case
studies in this research mainly focus on the state side in terms of policies,
institutional arrangements, and other mechanisms in promoting these industries. The
conclusions that this study draws from the case studies are tentative and might also
not be valid for other industries with different natures and setups. In addition, the
lessons to be learnt from this study might not be applicable for other industrial late
comers, which have very different both internal and external structures to Japan. In
short, we need more studies looking at wide range of industries to make a more

56
definitive conclusion of Japan’s overall industrial policy changes. Despite these
limitations, this study and its case studies provide sound ground of analytical
framework and theory building in analyzing the evolvement of Japanese industrial
policy. The goal of this study is to generalize a particular set of results to a broader
theory by comparing and contrasting the two case industries with different natures,
structures, and international competition status. And this is exactly what this study
aims to achieve. In addition, this study looks back to current literature in Japan’s
political economy and industrial policy; it highlights and clarifies blind spots in
Japanese industrial policy studies by drawing conclusions from its fieldworks.

1.5 STRUCTURE OF THE DISSERTATION
The dissertation is organized into five main chapters. The next chapter has
three main purposes. First, it is to review Japan’s postwar economic miracle, the
development of Japanese industrial policy, and the burst of economic bubble in late
1980s. Second, it is to examine Japan’s reforms in the 1990s based on my main
analytical framework and thesis. It argues that both the Japanese state and private
sector are still utilizing industrial policy in simulating artificial markets to correct
possible market failures and promote certain promising industries on the contrary to
conventional suggestions of Japan’s post-bubble changes. In addition, I will
highlight several important scholars’ perspectives and suggestions on Japanese
industrial policy to support my major arguments and theory. And the last is to
conclude the literature reviews, my thesis, and major findings on Japan’s reforms in

57
the 1990s as a sound groundwork for analyzing the following two case studies. It
aims to see if the two cases will shed the same conclusions to support my thesis and
arguments on the current changes of Japanese capitalism and industrial policy
practices.
Chapter three is to report my field research findings in Japan’s robotics
industry. This chapter first reviews the rapid development of Japan’s industrial
robotics since late 1960s and highlights the roles of industrial policy in promoting
this strategic industry. Following that, it concludes the current status (including
major strengths and weaknesses) and structural problems of Japan’s robotics industry
in parallel comparison with the current development of global robotics industry. It
highlights the importance of robotics technology as one of the most disruptive
technologies for future warfare and national power considered by many countries.
Thus, this chapter further introduces the current major development of Japan’s next-
generation robotics since the late 1980s. It then tries to analyze the current
development, based on my weak military market structure theory, by reporting how
the government’s industrial policy is promoting this industry by exploring the nature
of government interventions: including policy platform, institutional arrangements,
funding, subsidies, government-industry-academia alliance, and joint R&D projects.
And with a concluding remark highlights the nature of Japan’s current industrial
policy to shed some possible implications to the change of Japanese capitalism in the
post-bubble era.

58
Based on my research findings, Japan’s postwar self-imposed weak military
market structure has seriously impacted the development of its robotics industry and
resulted in relatively strong industrial robotics but weak at basic R&D and extreme
environment and military applications. As such, Japanese government and its
industrial policy have been trying to simulate artificial markets (and military
markets) to redirect robotics R&D toward tri-use (industrial, service, and extreme
environment) robotics technology and at the same time diversify robotic
applications. The Japanese government is trying to enhance the basic and university-
based robotics R&D and to redirect Japan’s robotics R&D by promoting
collaborative projects into extreme environment applications that has high military
potential in terms of technological applications. It appears that the Japanese
government is manipulating its industrial policy and utilizing its resources to
simulate artificial markets in order to direct the robotics R&D and development into
more flexible applications and with higher dual-use potential.
Chapter four reports my findings in Japan’s aircraft industry. This chapter
first reviews the history of Japan’s postwar aircraft industry recovery and
development, and pinpoints the strategy and objectives of the state’s various
industrial policies. Following that, it reports the current status (including major
strengths and weaknesses) and embedded structural problem of Japan’s aircraft
industry from its self-imposed weak military market structure, as well as the
increasing dynamic external environment of such as the U.S. policy shifts in
technology transfer and attitude toward China and North Korea. This chapter then

59
introduces and analyzes the current development of Japan’s aircraft industry based
on my weak military market structure theory, by reporting how the government’s
industrial policy is promoting this industry, and by exploring the nature of
government interventions. And the concluding remark highlights possible
implications to Japanese capitalism and industrial policy in the post-bubble era. This
case study clearly demonstrates the Japanese government is still utilizing its
industrial policy to simulate artificial markets (and military markets) by deepening
international collaboration projects and initiating more indigenous projects in order
to attract private participation and investment. The government’s industrial policy
attempts to guide domestic R&D activities for the ultimate goal of an independent
aircraft industry, in countering the weak military market structure. In addition, this
chapter also highlights Japan’s recent moves since 1990s to release itself from the
weak military market structure as an indication of possible structural transformation
in the near future, especially the possible relax of arms export prohibition in the end
of 2009.
The conclusion chapter addresses and concludes the overall evidences of
change and continuity in Japanese industrial policy by comparing and contrasting the
two cases, and examines whether it supports conventional suggestions. It then points
out the possible impacts of industrial policy to these industries and provides brief
implications to Japan’s political economy. Based on various research findings, the
final chapter concludes that from similar market failure mentality, the Japanese state
is still formulating and implementing tailor-made industrial policies and various

60
discretionary measurements to promote “strategic” technologies and industries.
However, it also notes that the nature of state supported R&D projects have shifted
from favoring specific firms to nurturing what the government calls the “strategic
and fundamental” sharing technologies and industries. This chapter further shows
that some of the industrial policy institutions and practices have been modified but
there is no clear sign of system conversion and some of the domestic firms in these
two industries still desire state leadership, coordination, and supports in contrary to
conventional suggestion.

1.6 CONCLUSION
Postwar Japan has largely attracted the world’s attention with its economic
miracle, bubble economy, and current ongoing reforms since 1990s. The academic
world has devoted decade-long efforts through countless researches, and debates
from different perspectives trying to understand the nature and logics behind Japan’s
industrial policy practices. This research redefines Japanese industrial policy by
putting it back to the original Japanese context and focusing on the market failure
mentality. The analytical framework is drawn from two case studies, robotics and
aircraft industries.
My theory suggests that without fundamental structural transformation (such
as the weak military market structure), Japan will not and cannot converge to
Western liberal market model. In addition, the unique Japanese market failure
mentality and the very existence of weak military market structure will still invite

61
and legitimize government interventions in Japan’s economic and industrial
development in the post-bubble era. Therefore, the current reform efforts should be
understood as a self-adjusting process for Japanese elites to rethink and refine
Japanese capitalism for better repositioning Japan in a more dynamic world. Thus,
current Japanese industrial policy reflects its economic bureaucrats’ linear plan
rational, however, with more participation from politicians and citizens at certain
degree.

62
CHAPTER 2: THE DEVELOPMENT OF POSTWAR JAPANESE
INDUSTRIAL POLICY

2.1 INTRODUCTION
Before I discuss my case studies in robotics and aircraft, I will review the
development of Japanese postwar industrial policy from 1950s to 1990s. This
discussion aims to support and validate my main thesis of the Japanese market
failure mentality theory and my definition of Japanese industrial policy. I will then
explore some salient natures and characters of Japanese industrial policy from both
this historical analysis and current academic debates. In the third section, I will
examine briefly the burst of Japanese economic bubble in the late 1980s, which was
followed by the introduction of market reforms in the 1990s. I will then analyze
Japan’s administrative reforms, government reorganization, and science and
technology (S&T) and industrial structure reforms by focusing on four major
institutional innovations: Japan’s new industrial technology promotion system,
newly designed hub organizations, new government-industry-academia alliance, and
small and medium enterprises (SMEs) revitalization. In addition, I will introduce
METI’s current industry promotion projects in the early 21
st
century in order to
provide a big picture of the major changes of Japan’s post-bubble industrial policy.
The conclusion section provides a foundation to the two case studies in the following
two chapters.

63
2.2 JAPAN’S POSTWAR ECONOMIC MIRACLE AND INDUSTRIAL POLICY

2.2.1 Japan’s Postwar Economic Miracle and Industrial Policy, 1950s-1980s
Japanese industrial policy practices is a product of market failure mentality in
countering four major possible market imperfections in the postwar Japan: late
industrializer for catch up purposes, lack of resources (natural, human, financial,
technological resources, and a strong industrial base), infant industry, and the
postwar self-imposed weak military market structure. Thus, the market failure
mentality of Japanese elites (both public and private) has molded Japan’s postwar
institutional design and development strategy and resulted in the government’s
heavy-handed industrial policy in simulating artificial market forces to promote
Japan’s postwar economic and industrial development.
In 1951, Japan’s economy size was only $14.2 billion in its GNP which was
only half the size of West Germany, three times less than Britain, and a mere 4.2
percent of the U.S. economy.
70
And Japan’s 1948 industrial production was merely
40 percent of its 1937 level.
71
Thus, for rapid economic recovery, from 1950s
Japanese government (mainly MITI) created an industrial policy system which
worked cooperatively with private enterprises in order to consolidate its industrial
base and promote industrial development. The government’s initial step in the early
1950s was to establish broad legal, policy, and financial foundations in giving MITI

70
Statistical Handbook of Japan 1958. Tokyo: Statistics Bureau.

71
Ibid.

64
necessary regulatory powers to formulate and implement its industrial policy. For
instance, the 1950 Law Concerning Industrial Rationalization had authorized MITI
to formalize cooperation between government and various private industries toward
the intersection of national production goals and private economic interests. At the
same time, the 1950 Foreign Capital Law granted the ministry more regulatory
power to negotiate the price and conditions of technology importation in order to
boost industrial production and promising industries through low-cost imported
equipment, management, standardization, and technology. In addition, in August
1952, the abolition of the Economic Stabilization Board and the Foreign Exchange
Control Board further gave MITI full control over entire Japanese imports and the
regulatory power over foreign exchange.
Moreover, MITI established Japan Development Bank (JDB) in 1951 and
Fiscal Investment and Loan Plan (FILP) to provide private firms with long-term,
low-interest financial resources. FILP was usually referred to as “Japan’s second
budget.” Its capital sources mainly came from Japan’s extensive national postal
savings system and various special accounts such as welfare insurance and national
pensions.
72
In 1950s and 1960s, FILP had allowed MITI to channel strong and

72
One of the important functions of Japanese postal offices is receiving Japanese people’s saving
accounts and insurance money. With better interest rate and a substantial exemption from income
taxes for interest earned, postal offices attract major part of Japanese people’s saving. And Japan’s
postal saving system became the largest financial institution in the world as well as the major cash
flow for Japanese government. The government used postal saving money to allocate in target
industries through FILP and JDB. Japanese government also used the postal saving money to help
funding the development of Japan’s NPO/NGOs. As competitive industries in Japan are able to get
direct finance from stock market, postal saving money became important for funding small and
medium business and trouble industries.

65
flexible financial support in the forms of loans or subsidies to the target industries
and needed infrastructures for rapid economic growth purposes. For instance, in
early 1950s, FILP supplied 21 percent of the total funds used for heavy and export
industries and 37.2 percent for the four basic industries, namely electric power,
shipping, coal, and iron and steel. FILP was also the key contributor of public capital
for toll roads, ports, airports, irrigation facilities, subway, railways, public housing,
and other critical infrastructures. In addition, the 1953 revised Foreign Exchange
Allocation Law further gave MITI the power to promote exports, manage
investment, monitor production capacity, and prevent foreign dumping.
As such, these important measures had provided a favorable condition for
MITI to utilize its industrial policy in promoting various critical industries in order to
counter possible market failures and structural constrains for Japan’s economic
development. Thus, the main theme of MITI’s industrial policy in 1950s was social
and economic recovery. It targeted fundamental industries such as petrochemicals,
chemicals, iron, steel, electric power, machine industries, heavy electrical equipment,
coal and shipbuilding to set the sound foundations for Japan’s industrial
competitiveness and rapid recovery from the war (Table 2-1). Moreover, with the
outbreak of Korean War in 1950s came the high tide of MITI’s heavy hand industrial
policy (and Japan’s high growth era) on controlling foreign exchange, tariff, and
allocating capital resources in promoting indigenous technologies by larger scale
public projects. In late 1950s and early1960s, MITI started to target motorcycles,
automobiles, aircrafts, heavy machinery and more complicated consumer electronics

66
industries in order to gradually adjust the entire industrial structure toward high
value-added and high productivity industries.

Table 2-1: History of Japanese Industrial Policy, 1950s-Current

Period Main Development Direction Example Industries
1950s:
Social &
Economy
Recovery
- Prepare legal, policy, social, and financial
foundations for economic, industrial, and
technological development;
- Promote fundamental industries for economic
and industrial recovery;
- Provide important infrastructures;
- Introduce strategic technologies;
- Petrochemicals;
- Chemicals;
- Iron & steel
- Electric power
- Machine industry
- Shipbuilding;
- Coal;
- Heavy electrical equipments;
1960s:
Rapid Growth
- Focus on indigenous technologies and
production
- Promote high value-added and productivity
industries to adjust industrial structure;
- Motorcycle;
- Automobile;
- Aircrafts;
- Electronics;
- Heavy machineries;
1970s:
Diversification
- Develop knowledge-intensive industries by
large-scale government-industry collaborative
R&D projects;
- Develop new energy and energy efficiency
technology to deal with environment problems;
- Revitalize traditional industries and move
high-pollution industries overseas;
- Robotics;
- Nuclear power;
- Computer & IT;
- Textiles;
- Shipbuilding;
- Chemical fertilizers;
- Aerospace;
1980s:
TechnologicalN
ation
- Prepare industrial infrastructure for next-
generation industries;
- Promote next-generation knowledge-intensive
technologies R&D;
- Semi-conductor;
- Next-generation computer;
- Automations;
1990s –
Current:
InternationalCo
ntribution
- Strengthen industrial competitiveness;
- Promote globalization of S&T policies for
sharing and exchange;
- Prioritize R&D for S&T innovation and
creation of new businesses;
- Next-generation robotics;
- Alternative energies;
- Machinery system technology;
- Biotechnology;
- Next-generation IT;
- Nano technology;
- Material technology;
- Life & Earth science;
- Aerospace;
- New production technology;

67
As a result, with less than two decades efforts, Japan had emerged to become
the world’s second largest economy and a major exporter of autos, consumer
electronics, semiconductors and other advanced industrial products. For 1950s and
1960s, Japan had achieved an average GNP growth rate of 9.6 percent.
73
In 1964, the
size of Japan’s economy was four times larger than its prewar level. By 1968, Japan
had become the world’s second largest economy with a nominal GDP estimated
around $91 billion.
74
It had doubled the national income, and had achieved an
average annual growth rate of 10 percent. From 1965 to 1970, GNP increased more
than 10 percent annually. By 1970, the size of Japan’s economy had overtaken all
European economies, and represented over 20 percent of the U.S.'s GNP.
75
In 1975,
Japan’s GNP was double of the U.K.'s, and in 1980, it reached $1,040 billion,
roughly 40 percent of the U.S. Japanese industry also increased steadily, with exports
growing on average 18.4 percent per year during the 1960s.
76

In the early 1970s the development path and the nature of MITI’s industrial
policy had changed. In order to meet international requirements with Japan’s major
trading partners such as the U.S., MITI had started to liberalize some industries and
its jurisdictions. Moreover, with the rapid economic growth in 1950s and 1960s,
Japanese government started to face policy difficulty of balancing economic growth

73
Statistical Handbook of Japan 1971. Tokyo: Statistics Bureau.

74
Ibid.

75
Ibid.

76
Statistical Handbook of Japan 1977. Tokyo: Statistics Bureau.

68
and environment protection. It faced serious challenges and pressure from various
civil society organizations over many environment pollutions in early 1970s. This
environment debacle had forced the government to adopt strict environment policies,
promote intellectual and knowledge-intensive industries, develop new energy and
energy efficient technologies, and also support exporting high-pollution industries to
overseas such as to South East Asia.
Thus, the nature of MITI’s industrial policy intervention had become more
informal in this period. The period of 1970s became the heyday of MITI’s informal
industrial policy tools such as its administrative guidance and amakudari in guiding
Japan’s further industrial development and promoting certain strategic industries.
Administrative guidance was the formal and informal orders, suggestions, and
requests from Japanese ministries to private enterprises. MITI had used this tool to
control and affect the structure of industries and market competition such as
regulating private enterprises’ competition, coordinating investment and resources
among firms and industries for its policy goals. And as its informal style, it was very
flexible for MITI bureaucrats to adjust industries structure, policy orientation, and
relationship with business without political intervention and supervision from the
Diet. On the other hand, amakudari had largely enhanced MITI bureaucrats’
influence over Japan’s business and industries, and government-business relations.
Most importantly, it had enhanced the information sharing between MITI and the
private sector in consensus formulation of industrial policy making process. In
addition, MITI’s industrial policy of 1970s had entered the diversification stage with

69
three main development paths. One was to alter overall industrial structure by
promoting intellectual and knowledge-intensive industries with large-scale
government-industry collaborative R&D projects (such as IT, aerospace, and
robotics). In addition, MITI also aimed to revitalize troubled industries (such as
textiles, shipbuilding, and chemical fertilizers). The third path was to develop new
energy technology to deal with environment problems.
As a result of active government promotion and private engagement, Japan’s
industrial production had grown more than double between 1965 and 1974.
77
By the
late 1970s, computer, semiconductor, robotics, and many other technology and
information-intensive industries had entered a period of rapid growth. From 1974 to
1983, Japan’s industrial production had increased another 40 percent with advanced
industrial products such as cameras, optical and precision equipment, TVs, and
VCRs replaced textiles as major exports.
78
In the 1980s, MITI’s previous success of
its industrial policy promoted many world-leading industries such as automobile,
motorcycle, camera, electronics, robotics, and computer. However, as post-industrial
economic growth heavily depends on new technologies and at the same time MITI’s
success in previous industrial policy has made many private enterprises become
more autonomous from MITI. Therefore, rather than promoting particular industry,
MITI further focused on high-technology industries ranging from semi-conductor,

77
Statistical Handbook of Japan 1985. Tokyo: Statistics Bureau.

78
Ibid.

70
robotics and new generations of computers, to automated production process by
supporting R&D and large joint government-industry development projects.
Japan’s postwar development reached its peak in 1990. Its per capita GNP
was $26,920 compared to $22,560 in the U.S. and per capita national income was
$19,035 compared to $17,379 in the U.S.
79
Its share of international trade grew from
under 4 percent in 1960 to 8 percent in 1990.
80
In 1950, Japan produced only 1,593
cars but the number dramatically increased to over 7 million by 1980. In 1990, Japan
produced 10 million cars compared to 6 million units of the U.S. Japan’s steel
industry is similarly dramatic. The total steel production was only 4.8 million tons in
1950, and reached 93.3 million tons in 1970, and 110.3 million tons in 1990, which
was 21 million tons more than the U.S. In terms of industrial structure development,
Japan’s primary sector (forestry, fisheries) changed from 1950’s 48.3 percent to 6.7
percent in 1990. And secondary sector (mining, construction, manufacture) changed
from 22 percent to 34.1 percent and tertiary sector (communication, finance,
government & services) from 29.6 percent to 59.2 percent.
In concluding the development of Japanese industrial policy, Johnson asserts
that Japanese industrial policy is a summary term for government activities intend to
develop strategic industries in order to maintain global competitiveness.
81
According

79
Statistical Handbook of Japan 1992. Tokyo: Statistics Bureau.

80
Ibid.

81
Chalmers Johnson. 1982. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-
1975. Stanford, California: Stanford University Press.

71
to Johnson and others, the Japanese government held three major kinds of industrial
policy tools in achieving its policy goals in the postwar era. First, it controlled capital
allocation through government financial organs such as JDB and FILP in the forms
of taxes, subsidies, preferential financing, and long-term low-interest loans.
82
For
instance, Lynn points out that the government policies in promoting Japan’s robotics
industry included low-interest loans from Japan Industrial Robot Association (JIRA),
special depreciation allowances, special long-term low-interest leasing program from
Japan Robot Leasing Company Limited (JAROL).
83
In addition, from examining
Japan’s R&D spending, direct financing, as well as tax policy in Japan’s IT industry,
Saxonhouse concludes that the government has promoted high-tech industries by
signaling Japan’s financial system that particular areas are unusually promising and
worthy of support.
84

Second, another governmental tool is the public-funded projects in
encouraging exports, formalizing cooperation between government and various

82
Ellis S. Krauss. Political Economy: Policymaking and Industrial Policy in Japan. Political Science
and Politics, Vol. 25, No. 1 (March, 1992), pp. 44-57; Chalmers Johnson. 1982. MITI and the
Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford, California: Stanford
University Press; Steven K. Vogel. 2006. Japan Remodeled: How Government and Industry Are
Reforming Japanese Capitalism. Cornell University; Lincoln, Edward J. 2001. Arthritic Japan: The
Slow Pace of Economic Reform. Washington, D.C.: Brookings Institution Press.

83
Leonard Lynn. Japanese Robotics: Challenge and – Limited – Exemplar. Annals of the American
Academy of Political and Social Science, Vol. 470, Robotics: Future Factories, Future Workers (Nov.,
1983), 16-27.
Edward Mansfield. Technological Change in Robotics: Japan and the United States. Managerial and
Decision Economics, Vol. 10, Special Issue: Competitiveness, Technology and Productivity (Spring,
1989), 19-25.

84
Gary R. Saxonhouse. What’s All This about Japanese Technology Policy? Regulation: The Cato
Review of Business and Government Vol. 16, No. 4, (Fall, 1993), pp. 38-46.

72
private industries, and providing necessary infrastructure in promoting strategic
industries. For example, Lynn concludes that MITI had successfully promoted the
level of robotics technology in Japan through several large-scale government-
coordinated R&D projects carried out by MITI’s Agency for Industrial Science and
Technology (former AIST).
85
The third policy tool was MITI’s regulatory power
such as administrative guidance, licensing, prohibitions, regulations, control over
technology importation and foreign exchange, protection tariff to prevent foreign
dumping, promotion of cartel in managing investment and monitoring production
capacity. For instance, Saxonhouse concludes the development of Japan’s IT
industry and argues that the high concentration and heavy regulation, particularly in
entry control, had provided a framework which made the government presence not
only possible, but necessary.
86

Moreover, Johnson points out that the prewar intimate government-industry
relations and the competent economic bureaucrats further provided Japan with
exceedingly suitable conditions for industrial policies in promoting its postwar
economic development.
87
Similarly, Krauss also highlights some regime characters,

85
Leonard Lynn. Japanese Robotics: Challenge and – Limited – Exemplar. Annals of the American
Academy of Political and Social Science, Vol. 470, Robotics: Future Factories, Future Workers (Nov.,
1983), 16-27; Edward Mansfield. Technological Change in Robotics: Japan and the United States.
Managerial and Decision Economics, Vol. 10, Special Issue: Competitiveness, Technology and
Productivity (Spring, 1989), 19-25.

86
Gary R. Saxonhouse. What’s All This about Japanese Technology Policy? Regulation: The Cato
Review of Business and Government Vol. 16, No. 4, (Fall, 1993), pp. 38-46.

87
Chalmers Johnson. 1982. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-
1975. Stanford, California: Stanford University Press.

73
such as industrial organizations and policymaking process, which were favorable for
MITI’s industrial policy to operate.
88
First, the ideological consensus between public
and private elites has legitimized the state’s interventions to facilitate economic
growth. Second is the powerful bureaucrat network from amakudari practices. Third,
Japan’s electoral system and long-term ruling of LDP had made interest groups and
politicians focus on voter-related fields and made MITI free from partisan
interference.
89
Forth is the institutionalized channels of communication in which
business interest were taken account into MITI’s policies.
And the last was Japan’s industrial organizations such as the total community
concept of Japanese kaisha (company), lifetime employment and seniority system,
enterprise unions with both white- and blue-collars, oligarchic nature of industries,
bank-loan tendency companies to take on long-term profit perspective, the linkage
between big firms and small subcontracting firms, private firms cooperate under
government organized projects, well-organized trade associations such as Keidanren
(Japan Federation of Economic Organizations) and Nikkeiren (Japan Federation of
Employers; Associations), and the very unique corporate group of Keiretsu (a set of
companies with interlocking business relationships and shareholdings).
90

88
Ellis S. Krauss. Political Economy: Policymaking and Industrial Policy in Japan. Political Science
and Politics, Vol.25, No.1 (March, 1992), pp. 44-57.

89
Japan’s electoral system was multi-member district single non-transferable vote (SNTV), within
which each electoral district had multiple Diet seats (usually 2 to 6), and each voter only had one
single and non-transferable (to other candidates) vote in the district.

90
There are six major keiretsu in postwar Japan: Mitsubishi, Mitsui, Sumitomo, Fuyo, Dai-Ichi
Kangyo, and Sanwa. The center of each Keiretsu was a main bank which mainly carried financial

74
In sum, postwar Japanese industrial policy reflected the market failure
mentality of Japanese elites on the four major market imperfections. Such mentality
has molded Japan’s postwar institutional arrangement and development strategy. It
was also an indispensible instrument for the government to simulate various artificial
market forces in countering possible market imperfections and, at the same time,
allowed Japan to rapidly recover and catch up with the western nations.

2.2.2 Market Failure Mentality and Japanese Industrial Policy
From above discussion, there are five essential characters of Japanese
industrial policy. First, Japanese industrial policy is the reflection of strong market
failure mentality of Japanese elites. Johnson uses the “developmental state” concept
to explain Japan’s economic miracle and its political economic arrangements.
91
He
traces Japanese history back to Meiji restoration and concludes that Japan’s
historically contingent factors, such as the lack of economic independence and
economic crisis, have given birth to its industrial policy and the developmental state
in reinforcing domestic consensus concerning economic growth as a national goal
which further legitimizes extensive state intervention. Moreover, Japan as a late

function in lending money to member companies (for support or emergency bailout to prevent hostile
takeovers in Japan) and had great control over the companies. There are two types of keiretsu which
complexly woven together and self-sustain each other: First, vertical keiretsu illustrates the
organization and relationship within a company (for example all factors of production of a certain
product will be connected). Second is horizontal keiretsu which shows relationships between entities
and industries.

91
Chalmers Johnson, ed. 1984. The Industrial Policy Debate. San Francisco, CA.: Institute for
Contemporary Studies; Chalmers Johnson. 1982. MITI and the Japanese Miracle: The Growth of
Industrial Policy, 1925-1975. Stanford, California: Stanford University Press.

75
industrializer in the western-dominated world, the state often took on developmental
functions in the advancement of industrialization. Thus, MITI took the central role
based on a cooperative government-business relationship to implement its market-
conforming industrial policy that enabled the miraculous economic growth in
postwar Japan. Similarly, Terry also asserts that industrial policy reflects strong
Japanese belief that the government does a better job in managing the overall
national interest than the free market.
92
The Japanese elites believe that the market
fails most of the time for smaller economies struggling to catch up with the
industrialized giants in the world. Moreover, he points out that “participatory
interaction” is the essence of Japanese industrial policy, in which the government
plays the role of catalyst in delivering market incentives to dynamic private sectors.
Vogel also points to the market failure mentality of Japanese elites in
designing and formulating its industrial policy.
93
He argues that the heart of Japanese
industrial policy was to raise levels of saving and investment since postwar Japan
needed high levels capital to grow. The Japanese authority believed that the private
sector would likely be to under-invest without strong government intervention to
share risks. In addition, Seabury links industrial policy to strategic military concerns

92
Edith Terry. How Asia Got Rich: World Bank vs. Japanese Industrial Policy. JPRI Working Paper
No. 10: June 1995.

93
Steven K. Vogel. 2006. Japan Remodeled: How Government and Industry Are Reforming Japanese
Capitalism. Cornell University.

76
for national security considerations.
94
He argues that in spite of the faith that frontier
industries rely more on comparative advantage than government’s subsidies for
innovation, comparative advantage never take national security into consideration.
Thus, Japanese industrial policy is an effective government instrument to determine
Japan’s national security rather than insouciantly relying on market forces.
Second, industrial policy is a responsive and corrective government
instrument in countering structural constraints and possible market imperfections.
The recent study on Japan’s steel industry by Bernard Elbaum offers the best
illustration of Japanese market failure mentality and the corrective nature of Japanese
industrial policy.
95
From long-term and historical perspectives, Elbaum traces and
reexamines Japan’s history of the steel industry back to 1890s. He concludes that
Japanese industrial policy has made an important contribution to its steel industry’s
achievement and Japan’s entire industrial development even though it was flawed,
subject to political influence, and based on limited forecasting power, particularly in
the lack of raw materials. Government intervention has yielded upward trending
benefits which promised to outweigh its costs and local access to raw materials as a
necessary comparative advantage in the long term. Therefore, he argues that
Japanese industrial policy contains both strategic and market failure elements. It

94
Paul Seabury. Industrial Policy and National Defense, in Chalmers Johnson ed. 1984. The industrial
Policy Debate. San Francisco, CA.: Institute for Contemporary Studies. pp. 195-216.

95
Bernard Elbaum. 2006. A Long, Contingent Path to Comparative Advantage: Industrial Policy and
the Japanese Iron and Steel Industry, 1900-1973. eScholarship Repository, University of California.
http://repositories.cdlib.org/ucscecon/629

77
aims at bringing Japan new capacity by promoting strategic industries in countering
market imperfections such as lack of natural resources. Without MITI’s industrial
policy, Japan might never have become a major steel producer for it had little source
of comparative advantage. And Japan’s industrial development would have been
substantially delayed. He concludes that from an historical vantage point, it becomes
clear that the Japanese government possessed no great powers of industrial targeting.
In his words,
The success or failure of this type of industrial policy depended on there
being opportunity for vary large gains from escaping the underdevelopment
trap in some basic industries and did not depend on the ability of the
government to pick individual winners and losers. Overall social returns
could be positive even if the government mainly picked losers.
96

Another example offered by Orit Frenkel also illustrates the corrective nature
of industrial policy in promoting Japan entering the global aerospace industry, in
which Japan is seriously handicapped by several market imperfections, namely the
insignificant domestic civil aircraft market, limited domestic military aircraft market,
and the absolute absence of export market.
97
He argues that Japan had concentrated
its efforts on altering the weak market structures of its aircraft industry by two major
forms of industrial policy. First, MITI had used its industrial policy to provide
market incentives to attract private participation and investment. On the macro-level,
MITI used measures to change the structure of aircraft industry (such as relaxing

96
Ibid.

97
Orit Frenkel. Flying High: A case study of Japanese industrial policy. Journal of Policy Analysis
and Management, Vol. 3, No. 3. (Spring, 1984), pp. 406-420.

78
antitrust laws) and measures to change the industry’s competitive position (such as
market protection, direct government loans, and public procurement). On the micro-
level, MITI had arranged close cooperation between itself and the industry in
implementing the industry promotion plan through institutional setup. The
arrangement includes the creation of a network of industry advisory councils at
achieving coordination, avoiding duplication in R&D, providing necessary capital
resources, and rationalizing production plans. Second, MITI had utilized its
industrial policy with various forms such as R&D subsidies, long-term low-interest
loans to encourage Japanese makers to systematically participate in international
consortiums hoping to acquire accesses to foreign technology and markets. He
concludes that Japan’s postwar success in rapid recovery and upgrade of modern
aircraft manufacturing capabilities could be attributed to MITI’s ability of altering
the very structure of Japan’s aircraft industry in the face of market failures, and in
providing market incentives to fit the industry’s needs.
In addition, Frenkel’s conclusion also highlights the highly strategic and
flexible character of Japanese industrial policy. Similarly, Ellis Krauss also points
out that industrial policy actively involves government (mainly the bureaucracy) to
anticipate future international trend and market development.
98
MITI then made
strategic decision to allocate public resources in order to promote the target industry
to the constantly changing market. He concludes that there has been no one industrial

98
Ellis S. Krauss. Political Economy: Policymaking and Industrial Policy in Japan. Political Science
and Politics, Vol. 25, No.1 (March, 1992), pp. 44-57.

79
policy that MITI has followed, either in content or method and that has been the
main reason for MITI’s effectiveness of being flexible and constant to anticipate the
changing structure of the economy and to adapt its methods to changing times.
Moreover, Krauss concludes that the success of industrial policy depends on
MITI’s ability to communicate with the industry to formulate consensus and
common goals, obtain legitimacy of state intervention, and gather information and
formulate its policies by reflecting the input and goals of industry itself. In other
words, his opinion implies an interdependent give-and-take relationship between
public and private actors. Therefore, the government can play either strong or weak
role depending on the particular industrial structures and settings which include
economic, social and political foundations of a given industry. For instance,
Samuels’ survey on Japan’s energy market concludes that MITI is a weak
administrative body that is at the mercy of private industries. Hence, it is forced to
compromise in spite of ambitions to enhance its own power.
99
Samuels argues that
the Japanese energy market is a history of repeated frustrations of bureaucratic
initiatives to attain market-displacing state intervention. Industrial policy is a system
of interdependence and an endless process of negotiation and mutual accommodation
between the government and private industries regarding the territory within which
authority can be exercised (jurisdiction) and the actual exercise of that authority
(control). He calls this system the politics of “reciprocal consent”, in which the stable

99
Richard J. Samuels. 1987. The Business of the Japanese State: Energy Markets in Comparative and
Historical Perspective. Ithaca: Cornell University Press.

80
power balance among politicians, bureaucrats, and businessmen has hindered any
radical departure from the status quo. Similarly, Calder argues that the capacity of
the state to strategically allocate capital has been constrained by the nature of private
sector.
100
On the whole, the capacity of strategic industrial policy lies in a formidable
and distinctive set of private-sector institutions.
Furthermore, the last is the protective nature of industrial policy in
maintaining social equity and promoting rapid economic growth simultaneously.
Chang points out that the protective role of industrial policy provides short-term
“social insurance” to firms which are in temporary difficulties and can not borrow
their way out due to market imperfections, which could bring about structural change
for Japan in the long term.
101
For instance, “cartels for structurally-depressed
industries” were granted to declining industries in return for their efforts to phase out
obsolete capacities and upgrade their technologies. In other words, Japanese
industrial policy has aimed to protect and phase troubled industries out “in an orderly
manner” rather than preserving and turning them into “nursing homes,” with well-
specified performance targets. Similarly, Vestal uses the “dynamic development
framework” concept to explain that the Japanese government in the postwar period
attempted to steer the economy towards a competitive market structure, while still

100
Kent E. Calder. 1993. Strategic Capitalism: Private Business and Public Purpose in Japanese
Industrial Finance. Princeton, N.J.: Princeton University Press. pp. 14-16.

101
Ha-Joon Chang. 1999. Industrial Policy and East Asia: The Miracle, the Crisis, and the Future.
University of Cambridge. pp. 68-70.

81
keeping the costs of dislocation, initially significant, to a minimum.
102
He concludes
that this tradeoff between maximizing growth and minimizing social disruption is the
single most important characteristics of postwar industry policy in Japan.
In addition, Tsuru’s case study on Japan’s sewing machine industry also
demonstrates the same protective nature of industrial policy.
103
Tsuru points out that
Keiretsu’s “one set” principle to diversification sparked a distinctive pattern of
competition for market share. The result was overinvestment and excess capacity,
which was followed by the strong intervention of government’s industrial policy to
manage competition. Tsuru shows all the pieces of industrial policy system in
protection, coordination of investment, and promotion that had created massive
production innovation and internationally competitive sewing machine industry.
Most importantly, the paternalistic industrial policy has enabled Japan to strike a
happy balance between competition at home and government support for sales
abroad. He concludes that the same mode was essentially repeated in the leading
industries as well.
In sum, industrial policy is a product of market failure mentality from
Japanese elites. It is a responsive and corrective governmental tool to counter
possible market imperfections in order to achieve needed structural transformation
and maintain social equity for the overall national development. In addition, the

102
James E. Vestal. 1993. Planning for Change: Industrial Policy and Japanese Economic
Development, 1945-1990. Oxford: Clarendon Press. pp. 68-75.

103
Shigeto Tsuru. 1993. Japan’s Capitalism: Creative Defeat and Beyond. New York: Cambridge
University Press.

82
effectiveness of industrial policy depends on the state’s ability to communicate and
negotiate with the industry in forming a solid consensus based on the structure of a
given industry. As such, the government’s role can be strong or weak depending on
the particular structures of a given industry.
More specific, Japanese elites do not see development as an automatic
process. They also do not believe that market forces alone can foster needed
development and structural transformation without government leadership and
interventions in correcting four major types of market imperfections in the postwar
Japan. These include the late developer for catching up, lack of resources (natural,
financial, human, and technological resources), infant industry, and weak military
market structure. Thus, for postwar Japan, industrial policy is not only a necessary
but also an indispensable mean for the state to counter structural constrains and
market imperfections. It channels public resources to simulate various artificial
market forces in promoting strategic industries, manage competition, coordinate
investment, and pick winners to concentrate resources to maximize growth. At the
same time, it also attempts to protect losers in order to minimize social disruption,
and facilitate fast adjustment of industrial structure for overall national development.
In addition, the existing market imperfection further invite and legitimize
government interventions in Japan’s economic and industrial development.

83
2.3 THE BURST OF BUBBLE AND THE REFORMS IN 1990s

2.3.1 The Burst of Economic Bubble
After the 1985 Plaza Accord, the Japanese yen rose three times in value from
the fixed exchanged rate in 1971 to 120 yen to one U.S. dollar in 1988, which largely
reduce the international competitiveness of Japanese goods in global market.
104

However, the increase of domestic demand, government’s loosened monetary policy,
as well as Japan’s large trade surpluses at that time allowed the Japanese companies
to invest much more capital resources than their competitors in making products
cheaper, which further widened the trade surplus in 1988 and 1989. With so much
money available for investment in Japanese banks and financial institutions,
speculation was inevitable, particularly in the Tokyo Stock Exchange and the real
estate market. In addition, banks sought an outlet for funds in real estate
development and further granted increasingly risky loans to private corporations, and
that in turn, doubled the value of land prices and stock market in the late 1980s.
105

The Nikkei stock index reached its historical height of 38,957 on December 29,
1989.
106
In May 1989, the government decided to tighten its monetary policies to
suppress the rise in value of assets, which in turn sent the stock market into a
downward spiral. Since then, the stock market had fallen 38 percent and the land

104
Statistical Handbook of Japan 1987. Tokyo: Statistics Bureau.

105
Statistical Handbook of Japan 1993. Tokyo: Statistics Bureau.

106
Ibid.

84
prices dropped sharply from their speculative peak and then collapsed.
107
In 1992,
the Nikkei index fell almost three-forth from 39,000 level in 1989 to 22,000, Japan’s
banks and financial institutions had bad loan rate nearly 25 percent, and the land
prices fell to less than half of the value in 1980s.
108

During 1991 to 1997, Japan entered economic stagnation period, its
economic growth rate stayed nearly zero, stock market value was only about half of
1989 level, and real estate prices was about one-fifth to the 1980s average, although
the government tried to pump the economy with countless public construction and
works.
109
In addition, a variety of factors in 1997 further worsened the recession and
sent Japan’s economy into a vicious circle including the increase of consumption tax
rate, the reduction of government investment, the bankruptcies of major financial
institutions, and the falling exports caused by the Asian economic crisis. As a result,
banks further tightened their lending policies and forced companies to reduce facility
and equipment investment, which in turn increased Japan’s unemployment rate and
dragged down consumer spending. Thus, starting in 1998 the Japanese government
established a 60 trillion JPY funding plan hoping to promote economic recovery by
increasing public spending, and also allocated another 40 trillion JPY for emergency
measure to deal with reduced lending by financial institutions. In addition, in

107
Ibid.

108
Ibid.

109
Statistical Handbook of Japan 1999. Tokyo: Statistics Bureau.

85
February 1999, the Bank of Japan decided on a 0 percent interest rate policy to ease
the money supply and pumped another 7.5 trillion JPY into 15 major banks.
In sum, in the 1970s and 1980s, almost the entire world believed that Japan
had formulated a perfect system in balancing competition and cooperation, economic
efficiency and social equity, labor and management, as well as government plan
rational and free market forces in modern economy. Most developing nations
considered Japanese capitalism as a more appropriate model in seeking to modernize
and industrialized. At the same time, Japan was also the role model for advanced
economies to learn about corporate governance, production management techniques,
quality control, just-in-time inventory control, industrial policy, keiretsu system, and
collaborative research associations. However, the collapse of economic bubble has
made the world to reevaluate and revise its conclusions on Japanese political
economic system and at the same time forced Japan to formulate and conduct
comprehensive structural reforms to adjust its postwar political economic
arrangements for lower system costs and higher efficiency from 1990s in order to
reposition itself in the much more dynamic internal and external environments of the
21
st
century.

2.3.2 The Reforms in 1990s
According to Vogel, there were three major forces in early 1990s pushing
Japan for change: the prolonged economic slump started in 1991, the accumulated
legacy of its own postwar success, and the challenge of integration into global

86
economy.
110
After the burst of economic bubble in the late 1980s, increasing public
requests had generated huge pressure in pressing the government to make
fundamental reforms to liberalize Japan’s economy and policymaking process. They
have urged the government to reform and liberalize the market by eliminating
protection and embracing open competition such as to open labor markets, liberalize
finance, reform corporate governance, deregulate industry, cut welfare spending, and
restructure taxations. Thus, from mid 1990s, the government has responded to the
public requests by formulating and implementing a series reforms to adjust Japanese
capitalism in three aspects: administrative, economic and financial, and industrial
structure. In addition, the reforms have integrated several “liberal” items from the
U.S. model, such as emphasizing university R&D and promoting entrepreneurship,
in creating important institutional innovations based on existing institutions. These
new adjustments have aimed to reduce system costs and increase efficiency in order
to enhance Japanese capitalism to meet current challenges.
Thus, Japan’s 1990s reforms have not aimed to produce a fundamental
political economic model shift. The elites’ belief of market failure has largely
molded postwar Japanese capitalism in more concrete forms of institutional design
and development strategy. Thus, a overall model shift of Japanese capitalism might
require an entire “reeducation” and “brainwash” process to the top public and private
elites, rather than simple institutional modification. In addition, the existing

110
Steven K. Vogel. 2006. Japan Remodeled: How Government and Industry Are Reforming
Japanese Capitalism. Cornell University.

87
institutions of Japanese capitalism resulted from the elites’ strong mentality has
contained several constraints and incentives with decade-long development, which
have greatly shaped the actors’ selection and the substance of reforms, as Vogel
suggests.
111
Thus, Japan did not aim to and can not conduct a fundamental model
transformation for the existing institutions can better respond to Japan’s social
preferences and are deeply embedded.
Vogel concludes that the 1990s reform was Japan’s attempt to make its own
hybrid system by embracing and redefining U.S. model in distinctively Japanese
logic.
112
He argues that the incentives and constraints of Japanese model and existing
institutions have largely shaped the substance of change. In his words, “Japan was
under double constraints: it cannot maintain its existing economic system owing to
the forces for change, and it cannot converge to the liberal market model owing to
the logic of its existing institutions.”
113
He believes that these dual constraints
became the major drivers of institutional innovation. Thus, the public and private
elites have created several institutional innovations from carefully selecting reforms
to modify or reinforce the existing institutions. In other words, the Japanese
government and industry have built on their existing ties to forge new public-private
partnerships to facilitate necessary adjustment. As a result, METI still dominate the
policy process, so the primary arena of decision making is unlikely to shift.

111
Ibid.

112
Ibid.

113
Ibid.

88
Similarly, Lincoln’s findings from comprehensively examining of Japan’s
various reforms in economic and financial deregulations, government reorganization,
JDB, postal savings, FILP, small business revitalization, and bank recapitalization
also reject the convergence view.
114
He argues that the 1990s reforms should be seen
as attempts to reduce costs and increase efficiency of Japanese capitalism rather than
structural transformation. In addition, he points out that the bureaucrats have
dominated the reform process since they control much of the relevant information
about the industries. Thus, without major external inputs from legislative, business,
consumer, or intellectual communities, the possibility of innovation from within the
bureaucracy is greatly lessened.
115
As a result, the role of bureaucrats in decision-
making process has actually been increasing over the course of 1990s rather than
decreasing.

2.3.2.1 Administrative Reform and Government Reorganization
For instance, Japan’s recent administrative reform began in 1996 and resulted
in comprehensive government reorganization in 2001. The administrative reform
was initially proposed by former Prime Minister Ryutaro Hashimoto in order to
enhance the decision-making power of elected politicians. In November 1996, the

114
Edward J. Lincoln. 2001. Arthritic Japan: The Slow Pace of Economic Reform. Washington, D.C.:
Brookings Institution Press.

115
Lincoln emphasizes two important characteristics about Japanese bureaucracy: first, most of them
become very conservative later in their career, if they remain radicals they will be politely amakudari
to other irrelevant positions. And second, the reform is highly shaped by the conservative old
bureaucrats at the top, even they are retired.

89
Administrative Reform Council (ARC) was established to conduct researches and
provide suggestions for the government’s reform. ARC’s government reorganization
report was finalized in 1997 and implemented in 2001. As a result, the administrative
reform has largely dismantled and reorganized Japanese government organizations,
especially the core organizations of the previous industrial policy system. These
large scale administrative reforms and reorganizations have aimed to transform the
government’s decision-making process from the long-term domination of
bureaucrats, political, and business elites to a more pluralist system in which citizens
and elected politicians could have a greater voice and more policymaking inputs.
However, in fact, most of the government reorganization items have aimed to
reduce inter-ministerial disputes on overlapping policy functions for better
integration of ministerial jurisdiction on particular policy issues, which in turn, has
largely enhanced the bureaucrats’ decision making power rather than weakening.
Lincoln also points out that Japan’s 2001 government reorganization is about
reshuffling rather than reform.
116
It has aimed to reduce contested jurisdiction
between ministries and resulted smaller role for elected politicians to play in
policymaking (exactly the opposite direction of purported rational from “liberal”
reform). For instance, the former Management and Coordination Agency absorbed
additional functions in postal service, broadcast regulatory functions, and
telecommunications regulatory functions from former Ministry of Posts and

116
Edward J. Lincoln. 2001. Arthritic Japan: The Slow Pace of Economic Reform. Washington, D.C.:
Brookings Institution Press.

90
Telecommunications (MPT). In addition, it also obtained the oversight of the
relationship between central and local governments from former Ministry of Home
Affairs and became the Ministry of Public Management, Home Affairs, Posts and
Telecommunications which was renamed as the Ministry of Internal Affairs and
Communications (MIC) in 2004.
Moreover, the former Ministry of Construction and Ministry of Transport
were merged into the new Ministry of Land, Infrastructure and Transport (MLIP).
The former Ministry of Health and Welfare and the Ministry of Labor were also
merged into the new Ministry of Health, Labour and Welfare (MHLW). And, the
former MPT transferred its industrial policy functions to MITI and formally ceased
to exist. In addition, the former Science and Technology Agency was split into two
units, one went to the new Ministry of Education, Culture, Sports, Science and
Technology (MEXT), and the other to MITI which became the new Ministry of
Economy, Trade, and Industry (METI). METI was probably one of the biggest
winners from the reorganization and is a clear example of large reduction in political
input as its jurisdiction was considerably expanded. In addition to all its former
functions, it has acquired telecommunications functions from former MPT and as
some science, and technology promotion functions from STA. Thus, the new METI
has greater capacity to settle policy issues internally without resorting to mediation
by politicians to battle against other ministries.

91
2.3.2.2 Economic and Financial Deregulations
On the other hand, Japan’s economic and financial reforms have aimed to
place greater emphasis on consumer over producer welfare. The reforms have aimed
to largely decrease the bureaucrats’ role in the economy and with five major focuses:
1) to allocate resources and stimulate new business relying more on market
mechanisms rather than government’s policies or bureaucrats’ guidance, 2) to
diminish the state’s role in influencing corporate behaviors, and to reply on the
market to pick winners, 3) to establish a financial system that offers financial
resources to all competitive borrowers but not favors major large firms, 4) to
promote capital and labor mobility by allowing firms to hire and fire at all levels to
maximize shareholder wealth, and 5) to liberalize the employment structure from
seniority to merit base.
In terms of economic deregulation, in 1993, former Prime Minister Morihiro
Hosokawa initiated wide range of economic reforms including incorporation of
Japan Development Bank (JDB) and privatization of Japan’s postal system from
political manipulation. And the issue of FILP and FILP agency bonds to introduce
market mechanisms to increase efficiency of utilization and management of FILP
funds. For instance, JDB absorbed the Hokkaido-Tohoku Development Finance
Public Corporation (HTDF) in June 1999, and became the Development Bank of
Japan (DBJ). In June 2007, the Diet passed the Development Bank of Japan
Incorporation Law (new DBJ law) and DBJ became the Development Bank of Japan,
Inc. in October 2008.

92
In addition, in 2001 administrative reform, the postal system was moved from
former MPT to the new Ministry of General Affairs. In 2002, with the privatization
of Japan’s Postal Savings, the postal savings and postal life insurance moneys were
made free to invest in order to secure the highest possible return rather than flowing
into FILP. Moreover, in the same year the government formally ended the capital
flow from the postal savings to FILP. The government ordered FILP to compensate
itself by issuing FILP bonds and FILP agency bonds (by affiliated organizations).
And FILP still continues to exist as an annual budget submitted to Diet based on its
financial performance.
However, Lincoln casts strong doubt toward the “liberal” orientation of the
reforms. He questions that why Japan with well-developed private financial
institutions needs a DBJ at all if the government does not intend to direct any lending
policy or to allocate capital resources to target industries.
117
He further offers several
strong evidences to reject the liberal orientation of Japan’s economic deregulations.
For instance, he points out that the merger of JDB and HTDF has not resulted in any
reduction in government role and might turn out to be still under highly political
influence and less cautious lending practices. In addition, he doubts the degree of
independence and profit-driven of the privatized postal savings under the Ministry of
General Affairs. He further points out that the government’s role in domestic savings

117
Ibid.

93
market has increased substantially over time.
118
Moreover, he points out that, by
2001, only 15 out of 69 FILP affiliated organizations issued bonds and the total
amount was only 2 percent of total FILP financing, which indicates markets did not
have incentives to purchase their bonds at all.
In terms of financial deregulation, in November 1996, former Prime Minister
Ryutaro Hashimoto called for a “big bang,” which has aimed to liberalize Japan’s
financial sector toward two major directions. First, the reform aimed to establish a
market-oriented financial system within which financial resources are allocated by
clear market signals rather than government policy. Second, it aimed to establish a
flexible financial sector which relies less on banking and more on securities. Major
deregulations occurred in 1998 such as liberalizing foreign exchange transactions,
reducing control over financial product design, opening up mutual fund, pension, and
trust market, adopting stockholder-centered principal in corporate governance, and
reducing barriers on capital flow. In addition, MOF’s jurisdiction of supervising
Japan’s financial sector was transferred to former Financial Supervisory Agency
(former FSA), and its control over public and recapitalized banks was passed to
Financial Reconstruction Commission (FRC) in the same year. In 2001, FSA and
FRC were merged and became current Financial Supervisory Agency (current FSA),
which was an intention to strengthen the power of prime minister in influencing
Japan’s financial policy.

118
According to Lincoln, the postal savings accounted only 14-16 percent of Japan’s total savings
deposits in 1980, however, the number reached 28 percent in early 1990s, 24 percent during the
bubble years, and a record high of 32 percent in 1997.

94
However, Lincoln argues, this financial reorganization also appears to be in
form than in substance as MOF still can maintain and exercise its influence to FSA
through its amakudari old boy network as well as control over information.
119
He
further points out that the adoption of stockholder-centered principal does not
necessary promise a large change in corporate governance. In addition, the lift on
foreign exchange restriction does not promise to inject more competition into the
market. Moreover, the relax of capital transaction only brought very little change on
investment behaviors. Moreover, he further points out that this financial big bang has
caused consolidation and restructuring of Japan’s financial industry and has brought
about several mega banks from many large-scale merges. And as a result of merges,
the government can better exercise and concentrate its financial influence to these
mega banks rather than dealing with numerous banks with different policy attitude.
The burst of economic bubble in the late 1980s and the further recession in
1990s had generated huge pressure in pushing Japanese government to formulate and
implement comprehensive reforms in administrative, government reorganization, as
well as economic and financial deregulation in order to reduce costs and increase
efficiency. In addition, Japan’s 1990s comprehensive reforms have integrated several
“liberal” items from the U.S. model, such as emphasizing university R&D activities
and promoting entrepreneurship, to supplement and enhance its existing institutions.
Moreover, they were reinterpreted in distinctively Japanese logics. Thus, the elites’

119
Ibid.

95
market failure mentality and the existing institutions have shaped the substance of
reforms and prevented a fundamental model shift.
As Vogel and Lincoln point out, the domination of Japanese bureaucracy and
the existing political economic institutions have largely controlled and shaped the
substance and the trajectory of the 1990s reforms. Therefore, the possibility of a
fundamental model shift or structural transformation from within is extremely low.
In addition, in the process of the comprehensive reforms, Japanese elites have
carefully selected reforms items and created several institutional innovations based
on cost-efficiency calculation in order to make necessary adjustments to meet both
internal and external challenges by reducing costs and enhancing the benefits of
these institutions. In other words, future adjustments will continue to follow a
distinctively Japanese logic. In the next section, I will discuss the major changes of
Japan’s S&T promotion system and industrial structure from the reforms.

2.4 JAPAN’S S&T REFORMS AND METI’S CURRENT INDUSTRIAL POLICY
The Japanese government has conducted several reform measures with an
aim to “liberalize” its S&T promotion system and industrial structure with five main
directions: 1) to adjust Japan’s S&T structure and industrial promotion system for
allowing more inputs from such as elected politicians; 2) to introduce competition
and promote innovation in Japan’s industrial structure; 3) to encourage new entries
of both individuals and private firms to high competitive industries; 4) to encourage
collaboration between academic sector and industry; and 5) to emphasize and

96
increase public funding to basic S&T and promising technologies rather than
particular industry or firms.
However, my findings have rejected the proposed liberal orientation of
current reform in S&T promotion system and industrial structure. Rather than the
proposed directions, the reforms have aimed to achieve better integration of
ministerial jurisdiction and promotion functions, as well as lower costs and higher
efficiency. The current system in promoting Japan’s technological and industrial
development reflects bureaucrat plan rational and bureaucrat-centric administration.
It values cooperation over competition and still carries strong protective nature and
market failure mentality. In addition, my findings concur with Vogel’s thesis, that,
during the reform era, the Japanese government has created several important
institutional innovations by combining several “liberal” elements and the existing
institutions. Consequently, it has constructed the current landscape of Japanese
industrial policy system in the post-bubble era.
In this section, I will introduce four major institutional innovations resulted
from the reforms which carry the diehard characters of Japanese capitalism: 1)
coordinating nature of the new Council for Science and Technology Policy (CSTP)
with more powerful METI and MEXT in reflecting bureaucrat plan rational, 2)
newly designed hub organizations in reflecting bureaucrat-centric administration, 3)
university R&D revitalization and the new alliance of government, industry, and
academia in carrying cooperation nature, and 4) SMEs revitalization in reflecting the
protective character of industrial policy. In addition, I will also introduce METI’s

97
current industrial policy in promoting strategic commercial technologies and
industries. Moreover, all the promotion measures have functioned as artificial market
forces to attract private participation and investment in these strategic industries.
This, again, reflects strong Japanese elites’ market failure mentality.

2.4.1 Japan’s New S&T Structure and Industrial Promotion System
In 1995, the Japanese Diet passed the Science and Technology Basic Law
with aims to double government R&D budget over its 1992 level before 2001. The
government has undertaken three successive five-year S&T basic plans from 1996
(Table 2-2). The first Science and Technology Basic Plan (1996-2000) had a total
budget of 17 trillion JPY which met the initial target and largely enhanced Japan’s
basic R&D activities. On January 1, 2001, the Japanese government reorganized the
Council for Science and Technology Policy (CSTP) which became one of four
advisory committees (the other three are Economic and Fiscal Policy, Central
Disaster Management, and Gender Equality) to the Prime Minister within the new
Cabinet Office (Figure 2-1). The new CSTP is chaired by the Prime Minister and has
14 members including the Minister of State for Science and the Chief Cabinet
Secretary as statutory members and all others are appointed by the Prime Minister.
The main functions of CSTP are: 1) to provide overall vision of Japan’s S&T
development based on international trend and domestic needs (and based on the
information provided by METI and MEXT for them control most information of
Japan’s industries), 2) to establish Japan’s basic S&T policy and allocate resources

98
accordingly, coordinate R&D activities among different S&T-related ministries
(especially between METI and MEXT), and 3) to evaluate large-scale public R&D
projects from MEXT, METI, and other related ministries. In addition, CSTP also
aims to adjust Japan’s overall S&T system by expanding competitive research fund
(doubling the size of solicitation-type grant and introduction of overhead cost),
mobilizing human resources (introducing tenure system for national laboratories),
supporting industrial technology development (enhancing the partnership among
government, university, and industry), and reforming national universities (in
becoming independent administrative organization). In April 2001, CSTP launched
the Second Science and Technology Basic Plan (2001-2005) with a total budget of
24 trillion JPY. This basic plan aimed to promote Japan’s science and technology
development in four main areas: life science, information and telecommunication,
environment, as well as nanotechnology and material technology.
Previously, there were three government agencies primarily responsible for
promoting Japan’s S&T and industrial technology. The former Ministry of
Education, Science, Sports and Culture took charge of supporting research at
universities, affiliated laboratories and institutes, which accounted about half of all
public R&D funding (13.4 billion JPY in 1998). The former Science and Technology
Agency (STA) had about one-forth of Japanese S&T money supporting several
national laboratories and large-scale R&D projects in nuclear energy, space, ocean
development, and synchrotron radiation. The third agency was MITI which received
about one-eighth of the government’s S&T funds in overseeing industrial technology

99
policy, subsidizing industrial R&D, running 16 national laboratories, and organizing
collaborations between its laboratories and industry. The remaining one-eighth of
government funding was distributed to other related agencies.

Table 2-2: Industrial Policy Related Legal Establishments in the Post-Bubble Era

1995 Science and Technology Basic Law
1999 Basic Act on the Promotion of Core Manufacturing Technology
1999/
2008
Act on Special Measures for Industrial Revitalization
2000 Industrial Technology Enhancement Act
2002 Enterprise Rational Promotion Law
2002 Act on Facilitating Research and Development in Basic Technology
2005 Industrial Standardization Act
2006 Chamber of Commerce and Industry Act
Overall S&T and
Manufacturing Technology
Promotion Measures
1993/
2006
Act on the Promotion of Research, Development and Dissemination of Social
Welfare Equipment
Public, Private, Academia
Collaboration
1998 Act on the Promotion of Technology Transfer from Universities to Private Industry
1999/
2005
Act on General Rules for Incorporated Administrative Agency
1999/
2007
National Institute of Advanced Industrial Science and Technology Act (AIST Act)
2002/
2005
New Energy and Industrial Technology Development Organization Act (NEDO Act)
Hub Organizations
Measures
2002/
2007
Organization for Small and Medium-sized Enterprises and Regional Innovation Act
(SMRJ Act)
1999/
2008
Law for Facilitating the Creation of New Business
2006 Small and Medium-sized Enterprise Support Act
2006 Enterprise Reorganization Act
2007 Small and Medium-sized Enterprise Investment Business Corporation Act
Support SMEs & Creation
of New Business
2007 Act on Equipment Installation Support for Small Enterprises
1997/
2005
Act on the Promotion of New Energy Usage
1998/
2008
Law Concerning the Promotion of Measures to Cope with Global Warming
2002 Basic Act on Energy Policy
2003 Act on Special Measures Concerning New Energy Use by Electric Utilities (RPS
Act)
2006 Act Concerning the Rational Use of Energy
2007 Act on the Promotion of Development and Introduction of Alternative Energy
2007 Act on Security for Loans from the Development Bank of Japan to Electric Utility
2006 Aircraft Manufacturing Industry Act
2006 Aircraft Industry Promotion Act
Other Industrial
Promotion Measures
2007 Ordnance Manufacturing Act

100
Figure 2-1: Japan’s S&T Promotion System Pre- (Above) and Post-2001 (Below)

Source: METI

During the 2001 government reorganization, the former Science and
Technology Agency (STA) was split into two units and merged to the new MEXT
and METI. Thus, MEXT became the largest S&T funding public agency with around
60 percent of the government’s total S&T budget. In addition, MEXT has a 10-
member S&T Council which helps the ministry in formulating, promoting, and
evaluating concrete plans and policies prioritized and funded upon the CSTP’s S&T
basic plan, implementing S&T reforms (such as in public universities, public R&D

Prime Minister

Science & Technology Agency (STA)

Ministry of Education, Culture and Sports

Ministry of International Trade and Industry

Other Ministries and agencies

InnNEDO/MSTC
RS
Council for S&T Policy (CSTP)

MET

EaJST
Prime Minister

MEXT

CouCouncil for S&T Policy
(CSTP)
nis
METI

PopJSME

Other Ministries

Council for S&T Policy (CSTP)

101
organizations, and newly independent administrative institutions), as well as in
coordinating R&D functions with other ministries. On the other hand, the new METI
also absorbed greater industrial policy and S&T capacity through the government
reorganization. It has acquired telecommunications functions from former MPT,
some basic science and technology promotion functions from former STA, and
accounts for about 15-20 percent of the government’s total S&T budget.
In sum, Japan’s new S&T structure and industrial promotion system have
pointed to the direction of lower system costs and higher efficiency in promoting its
technological and industrial development. The reforms have resulted in better
integrating and allocating public resources, decreasing the overall number of
ministries and inter-ministries disputes, reducing redundancy, enhancing cooperation
among the various sectors of Japan’s S&T, and providing more coherence and
strategic direction across the very large and capable Japanese private enterprises. In
addition, the new CSTP aims to coordinate Japan’s overall public resources and
bridge METI and MEXT in industrial promotion. And the new METI and MEXT
with greater capacities can now settle policy issues internally without resorting to
mediation by politicians. The reform has increased the overall efficiency of Japan’s
S&T system and reduced overlapping or contested jurisdiction fights or disputes
among ministries. Consequently, it has decreased the role for politicians in
policymaking, which is exactly the opposite result of the purported rationale from the
“liberal” reform.

102
2.4.2 New Institutional Arrangements and Hub Organizations
Japan’s administrative reform has also created certain institutional
innovations in non-ministerial level, namely the newly designed hub organizations.
In 1999, the Japanese Diet passed the Act on General Rules for Incorporated
Administrative Agency (Table 2-2). It aims to transfer several government agencies
and affiliated organizations into “independent” administrative agencies for higher
efficiency and flexibility, better financial performance, and more objective
evaluation capability in carrying out government policies and tasks. There are five
main hub organizations with specifically designs and capabilities to carry out
METI’s various industrial policy functions, namely NEDO, AIST, MSTC, SMRJ,
and SBIC. They also function as the sound foundation for the new alliance among
government, industry, and academia in promoting Japan’s overall industrial
technology R&D and commercialization activities (Table 2-3). Although these
institutions are legally out of their original ministerial jurisdiction, METI still can
exercise influence through funding, amakudari, informal guidance, and supervision
on assigned tasks.
For instance, NEDO (as the project manager and policy coordinator) acts as
the policy hub organization (or policy link) to carry out detailed project planning,
coordinating, managing, and evaluating among METI, private corporations, and
academia (Figure 2-2). NEDO was originally established by the Japanese
government in 1980 as the New Energy Development Organization functioning as
the funding affiliation with MITI to develop new oil-alternative energy technologies.

103
The government subsequently expended its activities to include industrial technology
research and development in 1988, environmental technology R&D in 1990, and
new energy and energy conservation technology in 1993. And in 2002, the Diet
passed the New Energy and Industrial Technology Development Organization Act
(NEDO Act) to reorganize NEDO as an independent administrative agency. It
authorizes NEDO the national R&D project planning, formulating, and managing
(also providing grants and subsidies to universities and private firms) as well as post-
project evaluation functions (Table 2-2).

Table 2-3: Hub Organizations in Carrying out Industrial Policy Functions in the
Post-Bubble Era

Organization Role Detail Functions
NEDO Policy-Hub;
Manager/Coordinator
Carry out detailed project planning,
coordinating, managing, and evaluating among
METI, private firms, and academia.
AIST R&D-Hub;
Public researcher/R&D
coordinator
Carry out actual R&D activities as well as
coordinate R&D activities among public R&D
institutions, private organizations, university
laboratories, and major academic societies.
MSTC Implementation-Hub;
Secretary
Implement detailed projects from NEDO and
coordinate efforts among NEDO, private
corporations, and universities.
SMRJ &
SBIC
SME-Hub;
SME Revitalization and
Regional Development
Promoter
Provide capital, land development,
consultation, training supports to SMEs;
Support restructure business; revitalize use of
management resources; reorganize share
business; create new business; R&D results
transfer; introduce new or innovative
equipments; support regional development.

104
Figure 2-2: NEDO’s R&D Promotion Scheme

Source: NEDO, 2005

Currently, NEDO is Japan’s largest core organization to promote national
level R&D projects that individual private enterprises can not undertake by
themselves (due to high risk and requirement of integration of diverse technologies).
It utilizes its extensive network to support cooperation between industry, universities
and public research organizations along with the application of public funding in the
areas of electronics and information technology, machinery systems technology,
aircraft and space technology, nanotechnology and materials technology,
biotechnology and medical technology, chemical substance management technology,
fuel cell and hydrogen technology, and energy and environment technology. As

105
such, NEDO has three main roles. First, it functions as a large-scale organization in
pursuing R&D of industrial technology with the goal of rapid commercialization of
advanced technologies. In addition, NEDO is a coordinator of R&D collaboration
among governmental, industrial, and academic sectors. And third, it manages
comprehensive public R&D projects through professional management approach.
120

Another important hub organization in carrying out METI’s current industrial
policy is the new National Institute of Advanced Industrial Science and Technology
(AIST, as the public researcher and research coordinator). It functions as the science
and technology R&D hug organization (or R&D link) among public research
institutions, private R&D organizations, university laboratories, and major academic
societies. The new AIST was reorganized by merging 15 research institutes from
MITI’s former Agency of Industrial Science and Technology (former AIST) under
the 1999 National Institute of Advanced Industrial Science and Technology Act and
became an independent administrative agency in 2001 (Table 2-2 & Figure 2-3).
The new AIST has more autonomy to determine how to allocate its own
funds in order to reach its targets. However, it is still principally funded by METI
(about 65-70 percent), although with a goal to raise 30 percent of its own budget
from Japan’s industry (currently is about 20 percent) (Figure 2-4). It is currently the
largest public research organization in Japan with 3,000 employees, 23 research
centers, 22 research institutes, 9 research bases, and several research facilities in

120
NEDO’s management method is based on the goals of “Success-oriented Operation”, “Improved
Accessibility” and “Dissemination of Easy-to-understand Information” and in accordance to the Plan-
Do-See (PDS) approach to optimal project management.

106
various innovative research fields all over Japan (Figure 2-5). Within AIST’s
organization, each research center has a short-term (3-7 years) mission oriented goal
and top-down management with about 10-20 AIST researchers and equal number of
visiting researcher averagely. And each research institutions has long-term basic and
applied research oriented with bottom-up management and with about 50-100 AIST
researchers and equal number of visiting researchers. Thus, AIST follows METI’s
Mid- and Long-term Industrial Technology Roadmap (in identifying R&D direction)
and functions as core innovative hub to engage in various advanced technology R&D
in order to promote the overall level of international competitiveness of Japanese
industries. In addition, it is also the hub to facilitate R&D cooperation among
government, industry, and academia.

Figure 2-3: Institutions of New AIST

Source: AIST

107
Figure 2-4: AIST 2007 Revenue (in Million JPY)

Source: AIST, 2008.

Figure 2-5: Staff of AIST in 2009

Source: AIST

108
2.4.3 University Revitalization and New Government-Industry-Academia Alliance
Another major institutional innovation from the reform is the establishment
of new alliance of government, industrial and academia in promoting Japan’s
industrial technology R&D. The main purposes of this new alliance are to foster a
greater spirit of innovation and entrepreneurship among Japanese scientists and
engineers, resulting in more patents, more technology transfer, and fast
commercialization. Thus, the government’s initial step was to revitalize R&D
activities of public universities by introducing more competitive grants system and
linking researches of industry and academia by joint R&D projects, which was
prohibited by law previously. For instance, CSTP’s 1996 First S&T Basic Plan
stressed the importance of technological innovation from university R&D activities.
It introduced the competitive grants system and lessened the prohibitions on public
university faculty in receiving R&D funding and positions from private firms in
order to establish industry-academia collaboration. In addition, with the change of
national universities becoming independent administrative agencies, their researchers
and faculty are allowed greater access to industrial R&D activities. At the same time,
it enables the government to further create public-private-academia collaboration
programs.
In terms of legal establishments in revitalizing university R&D activities, the
Diet passed the Act on the Promotion of Technology Transfer from Universities to
Private Industry in 1998 (Table 2-2). The law aims to promote industrial technology
and creation of new business by transferring R&D results from university

109
laboratories and national R&D institutions to private enterprises. It authorizes METI
and MEXT to promote academic R&D toward more practical oriented and further
progressing by supporting transfer or setup of special execution rights of specific
technology patents from university and public research institutions to private
corporations (especially to SMEs). This law also authorizes SMRJ to utilize the
Industrial Structure Improvement Fund (ISIF) for providing necessary subsidies,
loan, or loan guaranty to carry out the detailed plans in transferring R&D patents to
private enterprises. In addition, SMRJ also collects and provides necessary
information and data to private firms for smooth transferring specific technologies.
Therefore, in order to revitalize university R&D, the Ministry of Education,
Science, Sports and Culture established 49 University-Industry Cooperative
Research Centers (CRC) in early 1998 to provide laboratory space on campus for
cooperative research projects. It also offers technical training for private sector
employees and academic consulting services, and hold special conferences, lectures,
workshops. And most of the cooperative projects last from 6 to 12 months and range
from materials, machinery and equipment, software, civil engineering,
biotechnology, electronics, to energy. And the patent rights produced from these
projects are commonly shared by the government or faculty members and the
participating companies.
On the other hand, METI and NEDO have also created several programs and
grants in supporting the collaboration of public universities and private industry. For
instance, the Grant for Practical Application of Industrial Technology Program and

110
the Grant for Practical Application of University R&D under the Matching Fund
Method Program (with grant ratio of 2/3 of the total budget and up to 100-200
million JPY) have aimed to support industry-academia collaboration projects for
practical applications in life science, information and telecommunications,
environment, nanotechnology and materials, energy, manufacturing technology,
social infrastructure, and frontier technology. In addition, on October 15, 2002 under
a five-year (2002-2007) project titled the Strategic Research Base Upbringing, AIST
established the AIST-Innovation Center for Startups (AIST-INCS).
121
It aims to
promote technological seeds in creating technology-oriented venture businesses from
Japan’s universities, with support from METI and MEXT (Figure 2-6). The functions
of AIST-INCS are to provide necessary public financial and legal supports such as
transfer of intellectual property rights, receiving exclusive licenses, reductions or
exemptions of license fees and facility charges, rent space or laboratory in AIST.
Moreover, in order to promote new alliance of government, industry, and
academia, the 1999 Basic Act on the Promotion of Core Manufacturing Technology
authorizes METI to assist local government to setup local industrial blocks (for
cultivating more interaction and cooperation among public, privates and university
R&D institutions) and to provide necessary infrastructures, facilities, human
resources, information, and “smooth capital resources.” In addition, the 2000
Industrial Technology Enhancement Act also aims to revitalize different research

121
The project has also been subsidized by MEXT with annual budget 1 billion JPY from its Special
Coordination Fund for Promoting Science and Technology.

111
entities and promote their collaboration as well as R&D results transfer among
private firms, universities, and public research organizations (Table 2-2). It
authorizes MITI to promote universities’ R&D activities by introducing more
flexible applications of private capital pouring into public universities in the forms of
contribution, consignment, joint R&D, research grants (with specific themes), and
discount on patent applications.

Figure 2-6: AIST-Innovation Center for Startups

Source: AIST, 2003

112
And in terms of R&D results transfer, the government supports the
establishment of Technology Licensing Office (TLO) in public universities with free
access for collaborating private firms and at the same time provide public funds to
support private firms to commercialize R&D results from universities. In addition,
NEDO’s Grant for Application of Industrial Technology Innovation (2007-open with
8.6 billion JPY budget in 2007) also aims to the collaborate government, public
institutions, industry, and universities in order to construct directly linked pathways
in both directions from research to markets and from markets to research (the
innovation superhighway concept). In other words, it aims to promote intensive
efforts to address technological challenges that respond to social needs and exploit
technological seeds at universities and research institutions while also pursuing
practical applications of research results from technological development so as to
facilitate their dissemination in society and cultivate new markets.

2.4.4 SME Revitalization
In order to revitalize SMEs, in 1999, the Diet passed the Law for Facilitating
the Creation of New Business. It enables MITI to promote startup businesses and
revitalize SMEs with subsidies, debt guarantees, exempt from limits of stock options,
and even equity investments by MITI’s Industrial Structural Improvement Fund
(ISIF fund) (Table 2-2). In addition, the 2002 Organization for Small and Medium-
sized Enterprises and Regional Innovation Act (SMRJ Act) together with the 2008
revised Act on Special Measures for Industrial Revitalization further authorizes

113
METI to utilize ISIF fund to promote and revitalize productivity of SMEs in order to
keep the economy going by various measures (Table 2-2). For instance, the laws
authorize METI to select revitalization target industries (with specific industry
productivity targets) and utilize ISIF fund to restructure these industries to focus on
their core businesses and drop non-core businesses in order to solve the problem of
overproduction and decrease competition by making labor and capital adjustments,
merging and separating firms, exchanging stocks, and transfer of ownership. Other
important measures for the same revitalization purpose include smoothly integrating
and flexibly utilizing business resources (including knowledge, skill, technology, and
equipment), flexibly applying technology and different R&D results and patents in
business innovation (including development of new products or service, innovation
of new production process, improvement of equipment efficiency, lowering running
R&D costs, and development of new materials). All these measures together have
greatly increased the government’s role in guiding Japan’s overall economic and
industrial development, rather than decreasing.
Moreover, the SMRJ Act established the Organization for Small and Medium
Enterprises and Regional Innovation, Japan (SMRJ) in July 2004 by merging
JASMEC (Japan Small and Medium Enterprise Corporation), JRDC (Japan Regional
Development Corporation), and ISIF (Industrial Structure Improvement Fund).
SMRJ has extensive network of local governments, chambers and societies of
commerce and industry, financial institutions, and universities. It is a one-stop
organization with more than 3,000 experts from various fields for supporting SME

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revitalization and regional development. SMRJ provdes three major business
resources to SMEs for revitalization: 1) capital support on debt guarantees and
investment, 2) hard type support on facility development and land development, and
3) soft type support of consultation, training, and mutual aid (Figure 2-7). For
instance, SMRJ provides subsidies, loans, or loan guaranty, technological
information to private enterprises for transferring R&D results and patents from
universities and public research institutions. It also supports the improvement of
overall industrial structure by utilizing ISIF fund in accordance to several related
laws (Figure 2-8 and Table 2-4). In addition, the same laws also authorize Small and
Medium Enterprises Business and Consultation Co., Ltd. (SBIC) to further enhance
capital resources to SMEs for introduction of business innovation equipments by
issuing stocks or reserving rights of new options.

Figure 2-7: Three Major Business Resources Provided by SMRJ

Source: SMRJ

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Figure 2-8: ISIF Loan Guaranty Scheme
Applications/Approval Apply/Receive Loans
Loan Guaranty
Source: SMRJ

Table 2-4: Loan Guaranty Provided by SMRJ

Laws Creation of New
Business (Support
Startups)
Creation of New
Business (New Business
Fields)
Special Measures for
Industrial
Revitalization
Amount 1.5 billion JPY 1.5 billion JPY 5 billion JPY
Period 10 yrs. 10 yrs. 10 yrs.
Percentage 50-70% 60-70% 50-100%

Source: SMRJ
Note: The qualifications for applying loan guaranty are based on the 1999 Law for Facilitating the
Creation of New Business, 2008 revised Act on Special Measures for Industrial Revitalization, and
other exceptions with SMRJ’s verification.

Furthermore, in 2007, the Japanese Diet revised the Small and Medium-sized
Enterprise Investment Business Corporation Act authorizing METI to supervise
SMRJ in supporting SME revitalization (Table 2-2). This law has further enhanced
SMRJ’s functions in transferring R&D results and patents from universities to
private enterprises coded in the 1998 Act on the Promotion of Technology Transfer
from Universities to Private Industry. In addition, this law has ensured stable capital
METI/SMRJ
Firms

IndSEProposa
ls
Banks

ISIF

116
resources to support SME revitalization and creation of new business from both local
and central governments, especially the cooperation between METI and MEXT.
On the other hand, NEDO’s Practical Application of Industrial Technology
program also provides financial support to private enterprises for commercially-
oriented development of technology in areas specified in the CSTP’s Third Science
and Technology Basic Plan (life science, information and telecommunications,
environment, nanotechnology and materials, energy, manufacturing technology,
social infrastructure, and frontier technology). The program includes three types of
grants. 1) The Grant for Practical Application of Industrial Technology (two years
R&D period with up to 50 percent grant ratio of total expenses) provides financial
support to private enterprises in developing new technologies which can be put to
practical use within three years. 2) The Grant for Technological Development by
R&D Venture Businesses (two years R&D period with up to two-third grant ratio)
provides financial support to SMES and R&D ventures originating from universities
that develop technologies for practical application. 3) The Grant for Practical
Application of Next-generation Strategic Technology (two years R&D period with
up to two-third grant ratio) provides financial support to private enterprises that
develop technologies for practical application to achieve breakthroughs in next-
generation technology.

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2.4.5 METI’s Current Industrial Policy
During the reform era, the Diet has passed or revised three legislatures to
enhance MITI’s regulatory power in promoting and strengthening industrial
technology R&D. First, the Diet passed the 1999 Basic Act on the Promotion of Core
Manufacturing Technology to authorize MITI to obtain a comprehensive plan to
maintain and upgrade Japan’s manufacturing technology competitiveness (Table 2-
2). The necessary measures coded in this law include promoting private firms’ R&D
activities with public financial support, providing technological advice, evaluating
private firms’ technological capabilities, supporting private firms to commercialize
their R&D results, helping to train their technicians, providing related information
such as industrial patents application, and enhancing their R&D cooperation with
universities.
In addition, the Diet passed the Industrial Technology Enhancement Act in
2000 (Table 2-2). The law concerns the international competitiveness of Japan’s
industry in the increasing fierce international competition and the transformation of
industrial structure. It authorizes MITI to take necessary measures to enhance
industrial technology through technology innovation (process innovation), creation
of new business and new market (product innovation). These necessary measures
include revitalizing different research entities and promote their collaboration,
cultivating human resource, preparing R&D facilities and infrastructure, providing
capital resource, promoting R&D results transfer among private firms, universities,
and public research organizations.

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Moreover, the Diet also revised the Enterprise Rationalization Promotion
Law in 2002 (Table 2-2). The law aims to promote and encourage rapid
modernization of important/core industries’ machinery and equipment. This law
authorizes METI to provide and improve necessary infrastructure such as road and
harbor facilities. It also authorizes METI to provide subsidies and grants to private
firms and universities in R&D activities, industrial experiment, and innovative
development of machinery and industrial equipments for the purpose of “enterprises
rationalization”.
As a result, the three major legal establishments in combination with the four
main institutional innovations during the reform era have formulated a new industrial
technology promotion system of METI in carrying out its current industrial policy. In
addition, METI has adopted the “Technology Strategy Map” method to select
industrial targeting, establish policy goals, and allocate resources by looking at social
needs and market speculation, domestic and international technology orientation, and
international competition.
122
This method aims to raise the efficiency of public R&D
funding and to avoid duplicate investment. More importantly, it attracts private R&D
participation and investment in tackling top-end technological challenges to promote
continuous development and international competitiveness.

122
According to METI’s Technology R&D 2007 Handbook, the structure of technology strategy map
include three major parts: 1) scenario introduction, 2) technology map, and 3) technology road map.
METI defines “Technology Strategy Map” as a comprehensive package of policy measures such as
R&D, establishment of technological infrastructure, code and standard setting to accomplish a policy
goal mainly by the technological breakthroughs. It also includes coordination and organization of
similar R&D under the same policy goals as well as collaboration of multiple R&D activities.

119
Thus, in accordance to CSTP’s Third Science and Technology Basic Plan and
METI’s Technology Strategy Map, METI and NEDO have established 232 major
public-subsidized R&D projects with a total budget of 480 billion JPY in 2008.
These projects focus on 24 strategic technologies in 8 major fields, such as
electronics and information technologies (14.53 billion JPY), machinery system
technologies (3.52 billion JPY), aircraft and space technologies (8.31 billion JPY), as
well as nanotechnology and material technology (11.62 billion JPY) (Appendix
B).
123

In addition, most of the target projects have been implemented through
METI’s new industrial promotion system and carried out under the new alliance of
government, industry, and academia. They are also under various supports (such as
personnel, financial, technical, R&D, and coordination supports) from the newly
designed hub organizations such as NEDO, AIST, and MSTC in tackling top-end
technological challenges in order to concentrate resources to produce more
technological breakthroughs. For instance, METI together with NEDO, AIST, and
MSTC have established several technology strategy map workgroups (WGs) in
NEDO. These WGs have around 500 members from government organizations,
public research institutions, universities, and private industries to formulate and carry

123
CSTP’s Third Science and Technology Basic Plan (2006-2010) includes five major fields: 1) life
science including fundamental health care and medical technologies, fundamental, technologies for
controlling the material production process of plants; 2) information and telecommunications includes
fundamental technologies for advanced information telecommunications equipment and devices
(electronic/information), fundamental technology for advancing the space industry (machinery
systems); 3) nanotechnology and materials include nanotechnology, and technology to create
innovative components; 4) new production technology: new production technologies (machinery
systems), robot technologies (machinery systems), and 5) environment and energy.

120
out detailed technological roadmap projects. They also aim to conclude the most
recent and advanced technology development trend (both domestic and international)
in order to formulate the technology strategy map accordingly. In addition, they were
established to flexibly manage the related R&D activities in the planned technology
strategy map (such as smooth transactions between R&D results and markets,
clarification of technological seeds and needs for different industries, and to
accelerate human capital cultivation and R&D facilities preparation). They are also
in charge of applying the introduction of scenario and R&D results in current social
context. In other words, the entire procedure of selection of industrial targeting,
carrying out public-industry-academia collaborative projects, R&D result transfer
and commercialization, follows the economic bureaucrats’ plan rational rather than
actual market mechanisms. Moreover, the R&D results from these major
government-industry-academia collaborative R&D projects are further transferred
through SMRJ, SBIC, and AIST-INCS. These organizations provide financial and
administrative supports, consultation, and legal assistance to SMEs and individual
researchers for creating new businesses and rapid commercialization purposes.
In terms of major change in the post-bubble era, the new METI has more
available resources, greater capabilities, wider jurisdiction, better institutional
arrangements and division of labor, and more participants from academia in carrying
out various collaborative projects to target and promote strategic industries for
Japan’s overall development. In terms of continuities, Japanese industrial policy
continues to reflect strong bureaucrats’ linear plan rational and prediction toward

121
near future in guiding and promoting the overall technological and industrial
development of Japan in the post-bubble era. In addition, industrial policy clearly
reflects the strong market failure mentality of Japanese elites in simulating various
artificial market forces to attract private participation and investment in “strategic”
industries to counter structural constraints.
Japan’s 1990s reforms in S&T promotion system and industrial structure has
resulted in better integration of ministerial jurisdiction and promotion functions in
order to reduce system costs and increase efficiency to meet various challenges from
both inside and outside Japan. In addition, the current system still reflects
bureaucrats’ plan rational and bureaucrat-centric administration. It values
cooperation over competition, and carries a strong protective nature and market
failure mentality. In addition, the reform has produced several important institutional
innovations and has constructed the current institutional landscape of Japanese
industrial policy system in the post-bubble era, such as the coordinator nature of
CSTP with powerful METI and MEXT. The newly designed hub organizations
reflect bureaucrat-centric administration. Third, the university revitalization and the
new alliance of government, industry, and academia carry the cooperation nature.
Finally, the SME revitalization demonstrates the protective character of industrial
policy. Moreover, METI’s current industrial policy has targeted long-list strategic
industrial technologies. All the promotion measures have aimed to create various
artificial market forces to attract private participation and investment in the strategic

122
industries targeted by METI, which again reflects strong Japanese elites’ market
failure mentality.

2.5 CONCLUSION
The market failure mentality of Japanese elites has largely molded Japanese
capitalism and development strategy. It has resulted in the government’s heavy-
handed industrial policy in simulating various artificial market forces to intervene
and promote Japan’s postwar economic and industrial development for the ultimate
goal of overall national development. Thus, there are five essential characters of
Japanese industrial policy: reflection of market failure mentality, responsive and
corrective tool to existing market imperfections, not-necessary-strong-state character,
strategic and adaptive orientation, and protective nature. As such, industrial policy is
a product of market failure mentality from both public and private elites. It is a
responsive and corrective government tool to counter possible market imperfections
in variously strategic and flexible forms in order to achieve needed structural
transformation and maintain social equity for the overall national development.
However, the collapse of economic bubble has forced Japan to conduct
comprehensive structural reforms to adjust its postwar institutions for lower system
costs and higher efficiency from 1990s in order to repositioning itself in the more
dynamic environments. In addition, the reforms have integrated several “liberal”
items from the U.S. model, but were reinterpreted in distinctively Japanese logics.
Thus, Japan’s 1990s reforms did not and could not produce a fundamental model

123
shift. The existing institutions of Japanese capitalism embedded in the elites’ market
failure mentality have greatly shaped the substance of the reforms. In the process of
the comprehensive reforms, Japanese elites have carefully selected reforms items and
created several institution innovations to reduce costs and enhance the benefits of
existing institutions of Japanese model.
In terms of the changes and continuities of post-bubble industrial policy,
Japan’s 1990s reforms in industrial structure have resulted in better integration of
ministerial jurisdiction and promotion functions. In addition, the current industrial
policy still reflects bureaucrats’ plan rational and bureaucrat-centric administration,
values cooperation than competition, and still carries strong protective nature and
market failure mentality. Moreover, the reforms have also produced several
important institutional innovations. They have constructed the current institutional
landscape of Japanese industrial policy system in the post-bubble era: 1)
coordinating nature of new CSTP with more powerful METI and MEXT in
reflecting bureaucrat plan rational; 2) newly designed hub organizations in reflecting
bureaucrat-centric administration; 3) university revitalization and the new alliance of
government, industry, and academia in carrying cooperation nature; and 4) SME
revitalization in reflecting the protective character of industrial policy.
As a result, the major legal establishments in combination with four main
institutional innovations during the reform era have created METI’s new industrial
promotion system in carrying out its current industrial policy. They have aimed to
simulate various artificial market forces to guide R&D direction, attract private

124
participation and investment in promoting strategic industries. Moreover, METI’s
current industrial policy has targeted long-list strategic industrial technologies. In
addition, most of the target projects have teamed up with major domestic players and
carried out under the new government-industry-academia collaboration. They also
obtain various supports from the newly designed hub organizations such as NEDO,
AIST, and MSTC in tackling top-end technological challenges and hurdles in order
to concentrate resources to achieve more technological innovations and
breakthroughs. The R&D results from these major projects are transferred through
SMRJ, SBIC, and AIST-INCS to SMEs for rapid commercialization and creation of
new markets.
Under condition of self-imposed weak military market structure, Japan needs
to adopt a different path and strategy to prosperity. The 1990s reforms have
produced several institutional innovations and created a new industrial promotion
system in the post-bubble era. I will use this analytical framework to examine
Japan’s robotics and aircraft industries.

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CHAPTER 3: JAPAN’S ROBOTICS INDUSTRY

3.1 INTRODUCTION
In 1967, Japan imported its first industrial robot from the U.S. and started to
develop this strategic industry for economic development and the labor shortage
problem. With less than a decade development, Japan became the world’s number
one industrial robots producer both in terms of stock number and technological level
in 1978. Underlying this outstanding success was an elaborate set of Japanese
government’s direct and indirect policies in promoting the level of robotics
technology and facilitating the widespread use of industrial robots in Japanese
industry.
124

Currently, Japan remains the world’s most advanced and largest
manufacturer of industrial robots with around half of the world’s industrial robot
stocks, constituting 8 of 10 the most competitive private robot makers in the world.
However, without a healthy military market structure to provide market incentives,
its robotics industry has been concentrated on profit-making and low-risk industrial
applications. This has produced two main weaknesses: weak military/extreme
environment applications and basic R&D. On the other hand, while many countries

124
Leonard Lynn. Japanese Robotics: Challenge and – Limited – Exemplar. Annals of the American
Academy of Political and Social Science, Vol. 470, Robotics: Future Factories, Future Workers (Nov.,
1983), 16-27.
Edward Mansfield. Technological Change in Robotics: Japan and the United States. Managerial and
Decision Economics, Vol. 10, Special Issue: Competitiveness, Technology and Productivity (Spring,
1989), 19-25.

126
have been vigorously developing military robotics to compete for the larger global
market, Japan is almost absent in this dynamic new game.
Thus, from late 1990s, the Japanese government has been arranging
institutions, teaming up with major private and academic partners, and utilizing its
industrial policy to simulate artificial markets (including military markets) by
numerous public projects. These projects have provided market incentives to redirect
the industry toward next-generation tri-use (industrial, service, and military) robotics
technologies and diverse robotics applications, especially for extreme environment
military purposes. In addition, the government also tries to make smooth technology
transfer from AIST to TRDI to allow the Japanese military to adopt civilian robotics
technology cheaper and faster for its Future Unmanned Defense System. This
strategy is very unique to the way most countries are developing military robotics
and has raised questions regarding the mentality of Japan’s industry policy.
125

This chapter uses Japan’s robotics industry as an example to prove the market
failure mentality theory. I first review the historical development of Japan’s robotics
industry from 1960s to 1980s before discussing the current status. I argue that
Japan’s postwar weak military market structure has affected the development of its
robotics industry, and resulted in current problems. My theory attempts to
demonstrate how the Japanese government is simulating artificial markets in

125
The U.S., for example, aims to promote diverse military robotics technologies and applications in
order to dominate larger global market at the current stage by providing profit incentives, trial and
error learning opportunities, scale of economy and market competition pressure for further
development and growth of its robotics industry, just like its aircraft industry.

127
redirecting and diversifying its robotics industry in order to counter the structural
constraints. At the end of this chapter, I highlight possible implications to Japanese
economy in the post-bubble era.

3.2 THE DEVELOPMENT OF JAPAN’S ROBOTICS INDUSTRY FROM 1960s
TO 1980s

3.2.1 Early Development of Japan’s Industrial Robotics from 1960s to 1980s
In 1966, U.S. AMF Thermatool introduced its Versatran robot and robotics
technology to Japan. A year later, Toyota installed Japan’s first industrial robot for
commercial operation. In 1968, license rights and related technologies of the other
American robot, the Unimate, were assigned to Kawasaki Heavy Industries (KHI).
Based on their early robot designs on the Unimate, KHI soon became Japan’s
leading producer of industrial robots, followed by Fujitsu, Fanuc and Mitsubishi
Heavy Industries (MHI). Since then, Japan trailed the U.S. in both production and
installation of industrial robots and positioned to dominate this new strategic
industry. In 1978, Japan’s robot population was more than triple that of the U.S. At
the end of 1982, Japan’s industrial robot stocks was more than four times bigger than
the U.S. (Table 3-1)

128
Table 3-1: World Robot Population, 1978-1982

Nation 1978 1979 1980 1981 1982
Japan 10,095 11,533 14,246 21,684 31,900
U.S. 2,831 3,340 3,849 4,700 7,232
W. Germany 450 na 823 2,301 3,500
U.K. 125 na 371 713 977
World Total 16,000 19,000 24,000 35,000 50,000

Source: International Trade Commission, 1983

There were great interests in robots in the late 1960s and many firms rapidly
entered the industry. There were four major factors that drove Japan to enter robotics
industry. First was the labor shortage.
126
Lynn points out that the increasing social
concern about a growing labor shortage in late 1960s provided the best ground for
developing robotics industry. For example, the main theme of the 1967 robotics
symposium in Japan was “What can robots do for a society that is short of labor?” in
response to the increasing social worry about a growing labor shortage. The second
factor was the division of the Japanese economy.
127
During the rapid economic
growth era, the Japanese economy was divided into two divisions: a group of
internationally competitive large firms and a relatively backward sector of smaller
firms. The impending labor shortage threatened to exacerbate the small firms’

126
Leonard Lynn. Japanese Robotics: Challenge and – Limited – Exemplar. Annals of the American
Academy of Political and Social Science, Vol. 470, Robotics: Future Factories, Future Workers (Nov.,
1983), 16-27.

127
Ibid.

129
problem because they could not compete with large ones in attracting adequate
supply of skilled workers. Therefore, the use of industrial robots became an obvious
social consensus (between public and private elites) in saving these small firms.
Since postwar Japan did not have a strong military market and industry, the
government considered certain industries such as automobile, shipbuilding, aircraft,
and robotics as strategic in promoting industrial and economic development, while
maintaining Japan’s military capabilities. Moreover, robots could largely increase
industrial productivity in diverse fields, especially in the manufacturing sector. This
fit in the government’s catch up goal in economical and industrial development. As
such, the robotics industry rapidly absorbed not only the government’s supports but
also Japan’s abundant technological capabilities, human resources, and industrial
experience accumulated since Meiji restoration.

3.2.2 The Role of Government in Industrial Robotics Development
Once there was a consensus, Japanese policy makers started to take both
direct and indirect actions to improve the level of Japanese robotics technology and
also facilitate the widespread use of industrial robots in domestic industries.
Moreover, many of these steps sought specifically to encourage smaller firms to
introduce robots. In 1971, Japanese government established the world’s first robotics
trade association, the Industrial Robot Roundtable, which predated the Robot
Institute of America by three years. This roundtable was reorganized as the Japan
Industrial Robot Association (JIRA) in 1972, which was a jigyo dantai, an

130
incorporated private association. One year later, it became a shadan hojin, a type of
public corporation intended to promote economic or social policies under MITI.
JIRA received subsidies from MITI’s Machinery Industry Promotion Fund and its
executive directors were mostly amakudari from MITI. From 1970s to early 1990s,
JIRA had continued to be a very active peak trade association and carried out various
industrial robotics promotion activities. It published journals, produced promotional
files, organized symposia, translated foreign technical literature and patents, and
conducted surveys on the introduction of robots in Japan.
128
In addition, some of its
activities went far beyond those of an American trade association. It channeled
interest-free loans from MITI’s Machinery Industry Promotion Fund to private robot
makers for promoting their technological level, provided lower-than-market interest
loans to robot users, and assisted robot leasing arrangements.
129

On the other hand, the Japanese government also took some direct measures
to promote the industrial robotics technology. For example, it had established around
a dozen public R&D institutes and laboratories to promote robotics R&D activities
by the late 1970s, which was led and coordinated by MITI’s Agency for Industrial
Science and Technology (former AIST) under the Large-Scale Research Projects.
Moreover, most of these government-initiated robotics R&D projects in promoting
the overall industrial robotics technology involved too high risk and cost for firms to

128
JIRA was reorganized in June 1994 and became Japan Robot Association (JARA).

129
According to MITI, JIRA channeled $3 million interest-free loans from Machinery Industry
Promotion Fund to thirteen firms in 1981.

131
undertake. Some example projects included the 1977 Project of Flexible
Manufacturing System Complex with Lasers, the 1980 Project of Unmanned
Machine Plant involved JIRA, KHI, Hitachi, and the government’s Mechanical
Engineering Laboratory, and the large scale 7-year Intelligent Robots Development
Project in 1983. In addition, the government had passed and implemented several
robotics-promotion laws and policies to encourage the introduction of industrial
robots. For example, many important measures were coded in the 1978 Law for
Extraordinary Measures for Specific Machinery and Information Industries. From
1980 to 1983, private firms installing industrial robots were given the regular
depreciation allowance in addition to a 13 percent for the first year installation.
Small firms could also get special below-market interest loans from the Small
Business Finance Corporation to introduce industrial robots.
Local governments had also set up special loan and leasing programs to assist
small firms to purchase or lease industrial robots in order to increase their
productivity. Moreover, under the auspices of MITI, the Japan Robot Leasing
Company Limited (JAROL) was established in April 1980. Its initial capital came
from twenty four robot manufacturers and ten insurance companies. And its main
capital resource was backed up by the government’s Japan Development Bank
(JDB), Long-Term Credit Bank, and the Industrial Bank of Japan. JAROL actively
provided robot users with far more attractive leasing terms than those offered by
regular commercial leasing firms. It also provided system engineering and consulting

132
services. From 1980 to 1982, it had leased around five hundred industrial robots to
some two hundred firms.
130

As a result of active government promotion and private engagement, Japan
soon became one of the leading nations in robotics in 1980s. By 1983 the U.S.
Department of Commerce surveyed international robotics industry and concluded
that, “The Japanese government has been active in developing and supporting
robotics and Japan enjoyed undisputed superiority in terms of their producers’
experience, capacity, financial strength, and market position.”
131
In terms of
industrial robot population, according to International Trade Commission, Japan’s
robot population grew more than three times in less than four years, from 10,095
units in 1978 to 31,900 units in 1982, which is around 60 percent of the world’s
working robot population of 50,000 units (Table 3-1). In terms of international
comparison, installations of industrial robots in Europe and North America only
totaled about 25 percent and 7 percent, respectively, of Japan’s stock number in
1990. The year of 1997 was the first peak for the Japanese robot stock, when it
reached 413,000 units, including all types of industrial robots. According to the
International Federation of Robotics (IFR), Japan’s robot shipments including
exports came to $5.7 billion (export sales was $3 billion), outclassed total production
in every other country in 2000. And in terms of technological capabilities of robotics,
Edwin Mansfield compared innovation process, imitation process, and Intra-firm

130
JIRA. 1990. Survey on Japan’s Industrial Robots in the 1980s.

131
The U.S. Department of Commerce. 1985. Survey of International Robotics Industry, pp. 35-40.

133
rates of diffusion among random samples of twenty U.S. and fifteen Japanese
industrial robot producers in 1985.
132
He concluded that Japanese firms were faster
by 30 percent in innovation process than the American firms.
133
In addition, the
Japanese firms were also faster in imitation process, about eight years compared to
twelve years of the U.S. firms, for the major potential users to begin using robots.
134

In terms of the intra-firm rates of diffusion, Japan was also much greater than U.S.

3.3 CURRENT STATUS OF JAPAN’S ROBOTICS INDUSTRY AND
INTERNATIONAL ASSESSMENT

3.3.1 Current Status and Weaknesses of Japan’s Robotics Industry
Decades of active government policy promotion and private engagement has
resulted in current status of Japan’s robotics industry. In general, the status of
Japan’s robotics industry can be summed up by two simple facts. First, Japan’s
robotics industry has been heavily concentrated on industrial and manufacturing
purposes and is the world’s largest industrial robot nation in terms of overall output

132
Edward Mansfield. Technological Change in Robotics: Japan and the United States. Managerial
and Decision Economics, Vol. 10, Special Issue: Competitiveness, Technology and Productivity
(Spring, 1989), 19-25.

133
According to Mansfield, the innovation process includes the development and introduction of new
robots as quickly and economically; the imitation process includes the growth overtime in the number
of firms using robots; intra-firm rates of diffusion includes the growth over time in the number of
robots used by a firm.

134
The potential users included ten industries: autos, auto parts, electrical equipment, appliances,
steel, non-ferrous metals, aerospace, farm machinery, machine tools, and other machinery.

134
value and stock. And second, Japan also has 8 out of 10 most competitive private
robot producers in the world in terms of production value and technological
competitiveness.
Japan has long been (since late 1970s) the world’s most advanced and largest
manufacturer of industrial robots, and has around half of the world’s industrial robot
stocks.
135
From the early 1990s, the manufacturing line production has been
changing to cell production and mass production has been changing to flexible
production system. The new production methods require not single purpose robot but
the next-generation (more AI, flexible, and multi-function) robotics technology and
since then Japan’s industrial robot production has been stagnated.
136
According to
United Nations Economic Commission for Europe (UNECE) and International
Federation of Robotics (IFR) 2004 World Robotics Survey, Japan has around
348,734 working robots, for just under half of the world’s working robot population
of 800,772 units, in 2003 (Table 3-2 & Figure 3-1). The 2003 number declined from
350,169 units in 2002. Between 2002 and 2004, while Japan’s number is either
declining or stagnating at an average growth rate around 0.9 percent annually. The

135
Japan led all other countries in the total number of international patents in robot technology created
during the 1990-94 period. Japanese inventors held 43 percent of the total number of international
robotics patents, followed by the United States (24 percent), Germany (16 percent), France (9
percent), the United Kingdom (4 percent) and South Korea (3 percent). Over the five-year period
1990-94, Japan ranked number one in robot technology patent activity.

136
According to AIST’s 2003 Report on the Current Status of Japan’s Robotics Industry, the changing
structure of manufacturing factory from line type to cell production system is posting great challenge
to Japan’s robotics industry, as the cell system requires multi-purpose industrial robots rather than the
conventional teaching-playback robots. However, most of Japan’s industrial robots are conventional
teaching-playback style.

135
U.S. and Europe are catching up quickly with annual growth rates of 5.2 percent and
6.7 percent, respectively. Some other international surveys have different figures due
to different definitions of robot, but similarly, they all highlight the declining and
stagnating trend of Japan’s overall industrial robot population.
137

Table 3-2: Installations and Operational Stock of Industrial Robots, 2002-2004

Yearly installations Operational stock at year end Country
2002 2003 2004 2002 2003 2004
Japan 25,373 31,588 37,086 350,169 348,734 356,483
U.S. 9,955 12,693 12,127 103,515 112,390 114,531
Germany 11,862 13,081 13,401 105,212 112,393 120,544
Europe 26,678 27,832 29,296 244,778 262,025 278,906
World Total 68,595 81,476 95,368 770,105 800,473 847,764

Source: UNECE and IFR, 2005
Note: The number of Europe included Germany.

In terms of overall production output value, Japan’s industrial robotics had
been stagnated since early 1990s and currently there has been a strong growth since
2003. According to Japan Robot Association (JARA), the total output reached the
peak of 600 billion JPY in 1991 and came a sharp decline to around 420 billion JPY
in 1992 (Figure 3-2). From 1992 to 1999, it showed a gradual recovery. In 2000, the

137
For example, according to the World Factbook, by end 2002, Japan’s working robot population
had fallen to 390,000 units of the world’s 690,000 working robots. From METI’s survey numbers, the
overall operational stock of robots in Japan started to decrease for the first time from 2000. From
2001 to 2004, the decrease accelerated and the number fell under 360,000 units and went back to the
1990s level. While Japan’s number is declining and stagnated, there is an obvious growing trend in
both U.S. and Europe’s industrial robot population with average annual growth rate around 6 percent.

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overall value peaked again at 660 billion JPY due to the rapid growing demand from
information and communication technology industry. The next year, it dropped
sharply again. In 2002, the value fell to around 390 billion JPY, it was also the first
time the overall output value is lower than 400 billion JPY since 1993 (around 400
billion JPY). From 2003, it shows a strong growth and in 2005 the total value
reached 676.6 billion JPY with a 14.9 percent growth rate. This current growth
reflects the fact that the government’s current industrial policy in promoting next-
generation tri-use (industrial, service, and extreme environment) technologies is
working. And the industry is replacing the older generation single-function industrial
robots to next-generation multi-function ones.

Figure 3-1: Operational Stock of Industrial Robots, 2002-2007

Source: UNECE and IFR, 2008

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Figure 3-2: Japan’s Robotics Industry Output and the Ratio of Export, 1991-2005

Source: JARA, 2006

In addition, Japan alone has 8 out of the world’s top 10 most competitive
private robot makers (Table 3-3). As of 2000 (according to JARA), robots were
being produced by 153 makers domestically. Some are industrial giants such as KHI,
Hitachi, MHI and some are very small with capital investment only around 10
million JPY such as Dainichi Kiko. Among all the domestic industrial robot makers,
Fanuc is the leading manufacturer with 17 percent of the industrial robotics market
share in Japan, 16 percent in Europe and 20 percent in North America. After Fanuc
come Kawasaki and Yaskawa, according to METI.

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Table 3-3: World’s Top 10 Robot Makers in 2007 (Units: 1,000 million JPY and %)

Corporation Country
Division
Sales
Company
Sales
Division
Sales Profit
Division Sales
Profit Rate (%)
Return of
Asset Rate
(%)
KHI Japan 3,737 13,225 199 5.3 1.3
FANUC Japan 1,712 3,810 - - 10.6
ABB Sweden 1,533 29,050 1 0.1 5.5
Yamaha Motors Japan 1,503 15,820 181 12.1 7.4
Yaskawa Japan 1,147 3,229 98 8.5 3.9
Hujikoshi Japan 723 1,867 68 9.4 4.2
Fuji Machinery Japan 636 908 107 16.8 9.7
KUKA Roboter
GmbH
Germany 582 - - - -
Deihen Japan 471 856 54 11.5 4.7
Sankyo
Japan 346 1,220 88 25.4 12.1

Source: METI, 2008
Note 1: section selling total amount means the total amount of sale in robotics division of a firm such
as the KHI’s robotics department including the sale of its motorcycle and gasoline engine sale,
therefore its figure is larger than Fanuc. The same case applies to Yamaha Motors and Yaskawa.
Note 2: Return of Asset rate is based on the entire firm.

On the other hand, the main weaknesses of Japan’s robotics industry can also
be concluded by two facts: weak basic R&D and weak military/extreme environment
applications. In 2001, JARA published the Report on Technology Strategy for
Creating a “Robot Society” in the 21
st
Century to conclude the current status of
Japan’s robotics industry.
138
The report points out that Japan appears to be

138
The JARA’s 2001 survey included the strengths and weaknesses in terms of technology R&D,
government policy, market structure, private strategy, and internal and external conditions, and at the
same time pointed out the future developing direction and strategy in terms of technology R&D,
private strategy and government policy of Japan’s robotics industry. This report was provided as the

139
international competitive in applied technology.
139
And it is relatively strong in
employing advanced robot technologies in the manufacturing sector, one of Japan’s
traditional areas of strength with decade-long R&D and manufacturing experience,
knowledge, and accumulated know-how in industrial robot production, sale and
service (Table 3-4). However, the U.S. and Europe are leading advanced robot
technologies in non-manufacturing fields (especially extreme environment and
military applications) such as nuclear power, space, oceanic research, disaster
prevention and rescue, and medical/welfare applications. Furthermore, in terms of
basic technology R&D, Japan has considerable expertise in basic areas such as robot
mobility in legs and wheels, visual recognition, sensors, and lower-order controllers
(Table 3-5). The U.S. and Europe are superior in areas such as manipulation,
mobility in crawlers, multi-finger hands, remote-controlled devices and associated
controllers, micro-and nano level devices, simulation, software, AI software and
intelligent control technology, networking technology, media technology, IT related
technology, and human interfaces. Moreover, both U.S. and Europe are aiming
heavily at military and aerospace applications and related technology R&D activities.
JARA concluded four main factors which have driven Japan’s robotics
industry into current characteristics, namely strong manufacturing application, weak

fundamental guideline for the government to reformulate Japan’s next-generation robotics industry
policy for the 21
st
century.

139
According to JARA, international competitiveness in applied robot technology used in the report is
based on four factors: ability to develop unique products that are subsequently copied by other
nations; Ability to export product; ability to have domestic market than other countries; and ability to
create markets.

140
basic R&D, and weak military/extreme environment applications. The first factor is
the lack of military market and incentives to develop military-related technology and
extreme environment applications. Second, due to the absence of national technology
policy and marketing schemes, extreme environment applications such as nuclear,
space and disaster prevention have not emerged and are still very much at the
laboratory stage. In addition, the lack of entrepreneurial spirit has made domestic
robot makers tend to concentrate on large and low-risk markets such as automobile
and electrical appliance manufacturing robots. And the last one is the declining
education level in engineering fields.

Table 3-4: International Competitiveness in Robot Applied Technology

Application Japan U.S. Europe
Manufacturing
Construction X X
Welfare applications Medical applications X X
Nuclear power Disaster prevention X
Space
Entertainment X
Bio-industry X
Agriculture Household X X X
Service application
Livestock farming Marine applications Probes X

Source: Japan Robot Association, 2001.
Note: ( : competitive; : average; X: not competitive).

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Table 3-5: International Competitiveness of Robot Element Technology

Type of element technology Japan U.S. Europe
Manipulation
Mobile (legs)
Mobile (crawlers) Mobile (wheels)
Multi-finger hands
Remote-controlled devices and
associated controllers
Micro-and nano level devices
Simulation Human interfaces
Intelligent control technology
Sensors
Visual recognition
Networking technology
Media technology ! !
Software !
Source: Japan Robot Association, 2001.

JARA further points out that, “In Europe and the United States, technical
standards for military and space hardware provide manufacturers with more stringent
development targets with respect to reliability and operating conditions than in
Japan.”
140
Thus, in response the current weaknesses/problems of Japan’s robotics
industry, as the primary representative of the private industry, JARA suggests that,
The government should take a leading role in systematically promoting the
development of technology of robot used under extreme environmental
conditions together with technical standards in this area. And the government
should actively promote a new approach of nurturing the robotics industry
with an infrastructure based on open technology foundations. Other policies
that the government should pursue include: development research programs

140
JARA. May 2001. Summary Report on Technology Strategy for Creating a “Robot Society” in the
21
st
Century, pp. 5-6.

142
geared towards practical outcomes; promoting joint technology development
projects between private and academic sectors; creating systems for re-
training of engineers and for accreditation of qualifications; introducing tax
benefits designed to encourage the use of robots; promoting “social
infrastructure” investment; promoting entrepreneurial endeavor; and
encouraging public-sector research in fields such as nuclear power, space,
and disaster prevention in a bit to generate new markets.
141

Unlike Japan, governments and industries in the U.S. and Europe have long
been emphasized their R&D activities in ground, air, and underwater military robotic
vehicles for future warfare. Many countries have considered robotics technology as
one of the most disruptive technologies for their overall national power especially in
military aspects. They have been vigorously concentrating their R&D efforts toward
applying robotics technology into extreme environment and military applications as
a mainstream. However, Japan does not have a healthy military market to support
and guide its robotics industry into these fields. For example, U.S. Defense
Advanced Research Projects Agency (DARPA) has generated substantial funding for
military robotics R&D. These defense applications often act as a proving ground for
innovative robotics technologies and thus the impact of this sector is extremely high.
Other international surveys also drew similar conclusions. In 2006, World
Technology Evaluation Center, Inc. (WTEC) published the International Assessment
of Research and Development in Robotics report to conclude the current
international development in robotics industry.
142
The report points out that the

141
Ibid., pp. 5-6; 23-24.

142
From 2003 to 2006, WTEC, under the sponsorship from the National Science Foundation (NSF),
the National Aeronautics and Space Administration (NASA), and the National Institute of Biomedical

143
robotics industry is a very active field globally. The U.S. currently leads in areas
such as robot navigation in outdoor environments, robot architectures (the integration
of control, structure and computation), and in applications of space, military,
underwater systems (Table 3-6). Japan leads in technology for robot mobility,
humanoid robots, and some aspects of service and personal robots including
entertainment. Europe leads in mobility for structured environments, including urban
transportation.

Table 3-6: International Robotics Comparison

AREA U.S. Japan Europe
Basic, university-based research (Individuals,
groups, centers)
***** *** ***
Applied, Industry-based research ** ***** ****
National research initiatives or Programs ** ***** ****
I
N
P
U
T
Government-Industry-University partnerships;
Entrepreneurship
** ***** ****
Robotic vehicles: military and civilian **** ** ***
Space robotics *** ** ***
Humanoids ** ***** **
Industrial robotics: manufacturing ** ***** ****
Service robotics: non-manufacturing *** *** ***
Personal robotics: home ** ***** **
O
U
T
P
U
T
Biological and biomedical applications **** ** ****

Source: WTEC, 2006

Imaging and Bioengineering (NIBIB) of the U.S. Government, conducted a comprehensive study in
assessing the development status of robotics worldwide by comparing major R&D programs based on
the criteria of quality, scope, funding and potential for commercialization.

144
Moreover, the report especially highlights that Japan is behind U.S. and
Europe in overall robot architecture and navigation in terms of technology R&D.
Japan is also behind in military and space robotics applications due to Japan’s
limited military market and activities. All the three countries have national initiatives
and are investing significant large funds in robotics R&D programs. However, unlike
the case of Japan, both the U.S. and Europe have long been concentrating their R&D
activities in military robotics, especially robotic vehicles for future warfare (Table 3-
7).
143
And the U.S. leadership in military robotic vehicles has been strongly
dependent on the support from DARPA’s various large-scale R&D projects. These
projects have achieved significant accomplishments in capable and reliable vehicle
systems in unmanned underwater vehicle (UUV) or autonomous underwater vehicle
(AUV), unmanned aerial vehicle (UAV) or autonomous aerial vehicle (AAV),
unmanned ground vehicle (UGV) or autonomous ground vehicle (AGV), and
unmanned surface vehicle (USV) or autonomous surface vehicle (ASV).
144
Many of

143
According to WTEC, robotic vehicles are able to move autonomously on the ground, in the air,
undersea, or in space. Such vehicles are “unmanned,” in the sense that no humans are on board. In
general, these vehicles move by themselves, under their own power, with sensors and computational
resources onboard to guide their motion. Such unmanned robotic vehicles usually integrate some form
of human oversight or supervision of the motion and task execution. And the oversight may take
different forms, depending on the environment and application. It is common to utilize so-called
“supervisory control” for high-level observation and monitoring of vehicle motion. In other instances,
an interface is provided for more continuous human input constituting a remotely operated vehicle
(ROV). In this case, ROV is often linked by cable or wireless communications in order to provide
higher bandwidth communications of operator input. In the evolution of robotic vehicle technology
that has been observed in this study, it is clear that a higher level of autonomy and AI are an important
trend of emerging technologies, and the ROV mode of operation is gradually being replaced by
supervisory control of autonomous operations.

144
According to WTEC, key future challenges in robotic vehicle research includes multivehicle
systems; distributed sensor networks and observatories; long-term reliable deployment; micro- and

145
these systems are deployed in a “remotely-operated” mode. Moreover, there is a
strong emphasis on integration of autonomous probes and observers with other parts
of the military tactical system in both the U.S. and Europe (Table 3-8 & 3-9).

Table 3-7: International Research Priorities in Robotic Vehicles

Region Research Priorities
United States Outdoor Vehicular Mobility: Ground, Air, Undersea
Navigation and Mapping in Complex Outdoor Environments
Key Applications: Defense, Space
Japan Indoor Mobility using Humanoid Locomotion
Novel Mechanisms of Locomotion
Key Applications: Service, Entertainment, Commercial Applications
Europe Mobility in Urban and Built Environments
Sensor-based Navigation with Maps
Key Applications: Defense, Infrastructure Support and Transportation

Source: WTEC, 2006

nano-scale mobility; efficient and independent power; human-robot vehicles; interactions; service and
entertainment.

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Table 3-8: Comparative Analysis of International Programs in Robotic Vehicles

Area U.S. Japan Europe
Basic core technologies
Mobility ** **** ***
Power ** *** ***
Architecture **** ** ****
Navigation *** ** ***
Applications
Entertainment * **** **
Field *** ** ***
Military **** * **
Personal/Service ** **** ***
Space **** * **
Transportation ** *** ****
Undersea **** *** ****

Source: WTEC, 2006

Table 3-9: Qualitative Comparison in Space Robotics Vehicle

Area U.S. Japan Europe
Basic core technologies
Mobility
**** ** ***
Manipulation
** *** ***
Extreme Environment
*** ** **
Power, Comm, etc.
*** ** **
Applications
Rovers
**** ** ***
Large Manipulators
* **** *
Dexterous manipulators
*** *** ****
Free-Flyers
*** *** **

Source: WTEC, 2006

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3.3.2 International Assessment of Robotics Technology
In addition, more and more countries are looking at the robotics technology
as one of the most disruptive technologies for their future national power in terms of
economic, industrial, and military capabilities. The U.S. National Intelligence
Council (NIC) 2008 report selected robotics technology as one of six most disruptive
technologies to U.S. national power out to 2025.
145
The report asserts that robots
have the potential to replace humans in a variety of applications with far-reaching
impacts on socio-economic, labor market, and national security. At the same time,
robotics is also a wide technology area that encompasses a subset of valuable
enabling technologies. And the development has already advanced to the stage where
single-application robots and related systems (including autonomous robotic
vehicles) are being implemented in wide range of civil and defense applications.
146

In addition, the report points out that the robotics technology has the greatest
impacts on the military element of U.S. future national power. Some key military
applications such as human augmentation and autonomous robotic vehicles could

145
In 2008, out of 102 potentially disruptive technologies, NIC selected six technologies (biogeron
technology, energy storage materials, biofuels and bio-based chemicals; clean coal technologies,
robotics; and the internet of things) as the most likely to enhance or degrade the U.S. national power
out to 2025. It published the report entitled “Disruptive Civil Technologies: Six Technologies with
Potential Impacts on U.S. Interests out to 2025.”

146
The report points out many of the building blocks of advanced robotics technologies such as
effective artificial intelligence (AI), behavioral algorithms, hardware (e.g. sensors, actuators, and
power systems) and software (e.g. robot platforms) are either already in place, or will be by 2025.

148
significantly improve the effectiveness of ground, sea and air forces.
147
Relatively
simple military robots and similar unmanned vehicle systems are already in active
service, providing important support to soldiers in many situations and future robot
systems may actively participate in combat. For example, QinetiQ North America
has already developed a series of Talon UGV platforms to carry weapons for use in
urban warfare situations. Producers will leverage robotics- and bionic-related
technologies to produce many systems that have clear defense applications, from
wearable devices such as exoskeletons to thought-controlled vehicles.
The report further predicts that, by 2025, unmanned systems with a much
greater level of autonomy will have been implemented (Table 3-10). The closely
synergistic technologies (e.g. human augmentation systems) will extend the
performance of soldiers significantly. In addition, military robots can also minimize
war casualties. The number of soldiers killed in combat will be reduced significantly
by the adoption of unmanned systems in 2020. The report warns that although the
U.S. is well positioned as the world leader in applying robotics technologies in
defense and military applications, however, the U.S. must continue to press ahead

147
The report analyzes the impacts of robotics from three aspects: geopolitical, economic, and
national security. In terms of geopolitical, the use of unmanned systems for terrorist activities could
emerge by 2025 because the availability of commercial civil robot platforms will increase
significantly. And economically, the report predicts that the global market for non-industrial robotics
could reach $15 billion by 2015. By 2020, a household robot will become a “must have” item for
family and a new and important consumer-robotics industry will emerge. In addition, robotics
technology can be easily diffused into other industries. Robots can replace human workers in a
number of skilled manufacturing roles, boosting the competitiveness of U.S.-based manufacturing
(also the case in Japan) in general. The use of an intelligent robotic workforce could improve the
competitiveness of U.S. industries.

149
with research relating to AI and human-robot interaction to avoid falling behind
Japan.
148

Table 3-10: Important Development of World Robotics (including predictions)

Year Important Development
2007 DARPA Urban Challenge successfully completed by at least one team
2009 Future Combat Systems (FCS) Test Unit implemented
2010 Chinese army implements military robots
2012 Brain machine interface developed that enables noninvasive control of devices
2014 Robots used alongside soldiers in combat situations (unmanned combat vehicles— robot
soldiers that can fire on an enemy)
2015 Global market for nonindustrial robotics reaches $15 billion
2019 Semi-autonomous robot home-helpers launched by Japanese
2020 Thought-controlled unmanned vehicles with “sliding autonomy” used in military
operations
2025 Autonomous robots find first applications.

Source: NIC, 2008

Moreover, with the rapid progressing of robotics technology, military
specialists and experts believe that we are in the middle of transition from current
manned weapon systems to future fully-unmanned weapon systems and will witness
future unmanned war within 20 years. Carl Johnson, vice president of the Global

148
This report unveils two countries at the forefront of robotics development, the U.S. and Japan.
Japan has long been at the forefront of commercial robot development such as in entertainment,
domestic, and humanoid robotics as well as many major technological development but not in military
application. On the other hand, the U.S. robotics research has been extremely concentrated on key
military robotics such as in autonomous vehicles, security robots, defense robots, and domestic robots.
Currently, the U.S. and Japan continue to make important developments in health care robots,
autonomous robotic vehicles (UAV, UGV, UUV, and USV), and human-augmentation technologies
(for example, the exoskeletons).

150
Hawk Program at Northrop Grumman, said in the 2001 Paris Air Show, “Unmanned
technology is the most exciting place to be in aerospace right now and F-35 Joint
Strike Fighter may be the last manned fighter plane needed for battle.”
149
In addition,
USA Today also commented on the development of military robotics,
Unmanned machines like the X-45 are being cooked up and tested in the
country’s most advanced labs. Within 20 years, squadrons of unmanned
planes will swarm enemy sites like killer bees, launching missiles and
avoiding detection with sophisticated jamming devices. Self-programmed
submarines will replace dolphins to detect and disarm mines. Robotic mules
the size of pickups will haul ammunition, medical supplies and food. Drone
ambulances will load wounded soldiers and cart them to hospitals. Crablike
robot will crawl into buildings to sniff out chemical stashes. The transition to
mechanized weaponry is the key to the military’s transformation from heavy
ground forces to smaller human units fortified with robotic weapons.
150

Thus, more and more countries are investing largely in developing military
robotic vehicles with the aim to compete for this rapid growing global market.
According to Visiongain 2008 report, the UAV Market Report: Forecasts and
Analysis 2008-2018 (published on May 6
th
, 2008), the UAV market has grown
rapidly since last decade providing considerable value strategically and tactically,
where the U.S. global War on Terror has played a significant role. There are
currently about 80 different models of military UAV (range from the large-scale U.S.
Global Hawk, Predator, and Eagle Eye to short-range Israeli Hermes 1500) in
operation in about 40 countries. The U.S. leads and dominates the global UAV
market with 50 American companies, academic institutions, and government

149
USA Today, June 22, 2001.

150
USA Today, May 17, 2005.

151
organizations developing over 150 UAV projects with 115 prototypes built and more
than 30 models ready for production.
151
Moreover, “There is a clear indication that
other countries are increasingly looking for an even greater variety of military
systems and capabilities aiming to compete for this dynamic global market with an
estimated value of $7.2 billion in 2009.”
152
Another Visiongain report, the Emerging
UMV and UGV Markets 2008-2018 (published on June 27
th
, 2008), proves the same
fierce competition for rapid growing global market of military UUV (estimated $160
million in 2009) and UGV ($450 million in 2009).
153
In addition, both reports
especially highlight that advanced Japanese robotics technology might post great
challenges to the U.S. domination if Japan turns its attention to military robotic
vehicles and related technologies development.

3.3.3 Examples of Military Robotics in U.S.
The U.S. Department of Defense’s current master plan calls for continuing
development and deployment of wide range of unmanned platforms. It aims to

151
According to the report, these UAVs can be categorized into seven classes. Tactical UAV includes
the catch-all for the ubiquitous 50 to 1000 lbs deployable unmanned air vehicle. Endurance UAV is
capable of extended duration flight, typically 24 hours or greater. Vertical Takeoff & Landing
(VTOL) UAV refers to the self explanatory air vehicle, typically rotary wing. Man Portable UAV is
often light enough to be back-packed by an individual and launched by hand-throwing or sling-shot
mechanism. Optionally Piloted Vehicle (OPV) UAV is capable of manned or unmanned flight
operations, typically an adaptation of a general aviation aircraft. Micro Air Vehicle (MAV) is defined
as having no dimension larger than 15 cm. Research UAV is developed for specific investigations,
typically with no production intent.

152
Visiongain. 2008. The UAV Market Report: Forecasts and Analysis 2008-2018, pp. 130-135.

153
Visiongain report highlights that the U.S. is at the forefront of UUV and UGV development. It
notes that there are over 150 UUVs used by the U.S. Navy alone. As UGV, in 2004 the U.S. army was
using 162 UGVs in Iraq and Afghanistan and the number reached 5,000 in 2007 and 6,000 in 2008.

152
achieve a fundamental transformation into a more agile, precision-lethal force for the
21st century. The Pentagon has spent $3 billion on robotic vehicles between 1991
and 1999. And the number will grow to $10 billion by 2010 under a Congressional
mandate that one third of its ground vehicles fleet should be unmanned by 2015,
according to the 2001 National Defense Authorization Act. Currently, one most
popularly used military UGV in the U.S. Army is the QinetiQ North America’s
Talon military robot, or known as Special Weapons Observation Reconnaissance
Detecting System (SWORD). It is a modular platform allowing for many types of
mission-specific arm attachments (Figure 3-3).
154

Figure 3-3: Talon Military Robots with Different Applications

Source: QinetiQ North America

154
QinetiQ North America's Technology Solutions Group includes the businesses of Foster-Miller,
Inc. and its subsidiaries such as the Planning Systems Incorporated (PSI), Automatika and Applied
Perception, and the R&D activities of Apogen Technologies, Inc.

153
It is remote-operated by ground station and is man-portable, easily transported and
instantly ready for action. Talon robot moves as fast as its human counterpart on flat
terrain. The robot is highly mobile in rough and urban terrain, and has the longest
battery life of all ground robots. It can be armed with a 7.62mm machine-gun (with
300 rounds of ammo), a .50 caliber sniper rifle or a 40mm automatic grenade
launcher. Talon robots were first deployed in 2000 with the explosive ordnance
disposal (EOD) teams in Bosnia to safely remove live grenades. In 2001, Talon
robots were used at the World Trade Center searching through the rubble for 45 days
and nights to help find survivors and victims. This has proved its dual-use
capabilities in both military and rescue purposes. From 2001 to 2007, the company
delivered 1,000 Talon robots to the U.S. Army. In 2008, just 13 months later, the
number has doubled to reach 2,000, far surpassing any other military robot. Talon
robots are now deployed in Afghanistan and Iraq, primarily to assist soldiers with the
extremely dangerous job of detecting and disabling roadside bombs.
Since 2000, the Talon family has expanded to include robots devoted to
specific tasks, such as IED disarmament, reconnaissance, hazardous materials work,
combat engineering support and SWAT unit assistant. This expansion is QinetiQ's
response to the military's growing interest in using for future combat operations. The
2008 Modular Advanced Armed Robotic System (MAARS) is a good example
(Figure 3-4). This new robot is equipped with a GPS transmitter for integrating into
the American Battlefield Mapping Programs, just like conventional tanks and
Humvees.

154
Figure 3-4: QinetiQ North America MAARS Robot

Source: QinetiQ North America

The same impact is in pilotless air and water vehicles. The evolution of
military UAV from primarily search and rescue to actual combat started from 1995
in Afghanistan with the Hellfire missile-armed MQ-1 Predator UAV from General
Atomics Aeronautical Systems (Figure 3-5).
155
The success of UAV deployment in
Afghanistan and Iraq has significantly bolstered further R&D efforts on the next

155
According to CNN’s special report of the World’s Untold Stories: Warfare by Remote on August
9, 2009, the MQ-1 Predator UAV has successfully carried out several attack missions in both Iraq and
Afghanistan including killing more than half of the top 20 Taliban leaders in the U.S. government’s
War on Terror. At the same time, it also transmitted real-time mission video back to CIA and
Pentagon from thousands of miles away.

155
generation of unmanned weaponized platforms such as the unmanned combat air
vehicle (UCAV) in the U.S. from both public and private actors.

Figure 3-5: General Atomics Aeronautical Systems MQ-1 Predator UAV Armed
with Hellfire Missiles

Source: 2007 Ulrich Grueschow, www.militaryaircraft.de

Currently, more than 200 different platforms with various purposes and sizes
are developed by some 50 companies. Corporate giants such as Boeing, Northrop
Grumman, and Intel are currently assembling infrastructure to support these
significant markets. On the other hand, official U.S. military programs have also
managed to remain at the forefront in both quantity and technical expertise in global
UAV industry. For instance, DARPA’s Joint Unmanned Combat Air Systems

156
Capability Demonstration Program (J-UCAS), has made significant achievements in
the past few years including Boeing’s X-45A, X-45C and Northrop Grumman’s X-
47 Contender. On the other hand, Northrop Grumman’s also developed the $35
million famous RQ-4 Global Hawk for the Advanced Concept Technology
Demonstration (ACTD) program also sponsored by DARPA (Figure 3-6). It is also
the first UAV in the world certified by the U.S. Federal Aviation Administration
(FAA) to share airspace with manned aircrafts. And with its wide survey range
(40,000 square miles per day), high resolution Synthetic Aperture Radar, and long
range Electro-Optical/Infrared image, this Global Hawk provides superior capability
for intelligence collection to support forces in worldwide operations.

Figure 3-6: Northrop Grumman RQ4 Global Hawk UAV

Source: Northrop Grumman

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In sum, JARA, as the representative of the robotics industry, has called for
the government’s leadership and intervention to correct the embedded problems from
Japan’s self-imposed weak military market structure. Due to the lack of a healthy
military market in providing sufficient market incentives to support and diversify
further development, Japan’s private makers tend to concentrate on profit-making
and low-risk industrial robotics applications. That, in turn, has tilted the development
of Japan’s robotics industry and formed the current characteristics, namely strong
manufacturing applications, weak basic technology R&D, and weak military and
extreme environment applications. Today, Japan is still the largest and most
advanced industrial robot nation in the world and can claim considerable expertise in
certain robotics technologies and applications. However, while countries have been
vigorously promoting military robots and related technologies in pursuing
domination of the larger global market, Japan is handicapped by the self-imposed
weak military market structure and is absent in this dynamic new game.

3.4 JAPAN’S 21
st
CENTURY NEXT-GENERATION ROBOTICS
DEVELOPMENT STRATEGY

3.4.1 Background and Current Strategies in Promoting Tri-Use Robotics Technology
and Diversifying Applications of Next-Generation Robotics
In addition to the problems, Japan’s socio-economic condition such as the
declining economy, rapid ageing population, labor shortage, and the threat of natural

158
disasters, have pumped public expectations toward greater uses of robotics
technology in Japan.
156
Therefore, since the late 1980s, the government had initiated
some projects hoping to redirect and promote further development (Table 3-11).
157

The industry has also been actively engaging in next-generation robotics R&D since
the early 1990s. More and more Japan’s corporate giants in the consumer electronics
and automobiles such as Honda, Sony, Fujitsu, Hitachi, NEC, MHI, KHI, and Toyota
have been diving into this field.
158

Of these, Honda is Japan’s first private corporation to start next-generation
robot research with their first walking robot E0 in 1986. During 1993-1997, Honda
debuted its humanoid robots P1, P2, and P3 with better balance, more functions, and
autonomous movements. Especially the P3 model is the first real-world practical
humanoid robot and an important robotics technology breakthrough.
159
Honda’s P3

156
In 2005, Japan’s MHLW announced that Japan’s population is becoming negative growth. The
number of death is 10,000 more than birth. According to the estimation of the National Institute of
Population and Social Security Research, Japan’s population will decrease 27 million in 2050 and the
total population will become around 100 million.

157
MITI’s Robot for Extreme Application Project (1982-1989) had a total budget of 18 billion JPY.

158
Sony joined the humanoid field in 2000 with SDR-3X robot. It further presented the advanced
general-purpose humanoid, QRIO, in 2003. Toyota joined Japan’s humanoid robot race in 2004 with
the creation of a new humanoid robotics division (consolidating resources with Denso Corp.) in its
production technology headquarters. It aims to commercialize its humanoid robots by 2010. Its major
partners include NEC Corp., micro-motor maker Yaskawa Electric Corp., University of Tokyo and
the Massachusetts Institute of Technology.

159
Honda debuted the Asimo in year 2000. Asimo is considered as the most advanced and
sophisticated humanoid robot in the world in terms of robotics technology. Asimo is the first
humanoid robot to reach the consumer market in the world. Asimo is the culmination of Honda’s two-
decade long robotics technology R&D. It can walk and run on uneven slopes and surfaces, turn
smoothly during walking and running, climb stairs, reach for and grasp objects, respond to simple
voice, recognize faces, map its environment and register stationary objects, and navigate to avoid
obstacles. As of 2007, Honda alone (without any government support) has devoted over 20 years and
MAFF

159
shocked the world, especially Japan’s industrial policy makers. Moreover, METI and
NEDO have repeatedly used the technological achievements of Honda’s Asimo as
one of the major goals for its National Humanoid Robot Project (HRP) in numerous
reports such as METI’s Robotics Technology Roadmap Reports from 1998-2007. In
addition, METI and NEDO have showed strong belief that the government’s
collaborative project, which incorporated several capable private makers,
universities, and public R&D institutions, could resulted in better humanoid robot
and more technological breakthroughs than the Asimo.

invested over $100 million dollars in its humanoid project and still continues.
159
At the same time,
Honda is developing welfare and medical robots such as walking-assisting suit for disability and
elderly. Honda is also researching extreme environment robotic applications such as fire-fighting
robot and toxic spills cleaning robot.

160

Table 3-11: Changes of Japan's Robotics Technology (including predictions)
Source: AIST, 2001

161
However, the most mass-production industrial robots have little to do with
the research performed in the public and academic sector. Although vast resources
are being poured into more advanced technology R&D, yet the fruits of these
researches rarely make it to the practical stage.
160
Much of the practical robot
technology is confined to the classical areas.
161
In addition, industry investment was
discouraged by Japan’s difficult economic climate in the 1990s. Moreover, as
manufacturers use different architecture and specifications to develop their robotic
components and software, it is difficult for developers to share and exchange their
research achievements. This has resulted in considerable inefficiency in next-
generation robots development. Thus, JARA, as the representative of the industry,
states in its 2001 report, “All the problems in current robotics development can not
be solved by the market mechanisms or private sector alone, but require strong
government leadership, interventions, and overall policy coordination.”
162
In 1999, MITI conducted a comprehensive survey as a foundation to
formulate its robotics industrial policy. It predicted that the robotics industry will
enter its high growth era after 2010 with an estimated 2.9 trillion JPY market size

160
According to JARA, current advanced robotics technology are such as force control technology,
compliance control technology, distribution tactile sensors, environment awareness technology based
on 3-D vision, multi-fingered hand, obstacle avoidance technology, off-line task planning, model-
based intelligence technology, walking robots (with legs), and learning control systems etc.

161
According to JARA, conventional robotics technology areas include fast-accurate positioning
servos, teaching-playback control systems, off-line teaching system, map reference mobile robot
navigation systems, 2-D vision technology, and unilateral remote control system etc.

162
JARA. May 2001. Report on Technology Strategy for Creating a “Robot Society” in the 21
st

Century, pp. 11-13.

162
and 7.95 trillion JPY in 2025 (Figure 3-7).
163
In this 1999 Survey Report on the
Current Status of Robotics Industry, MITI stated that, “In order to correct the
problems resulted from Japan’s unique environment and to satisfy social
expectations, it is the government’s job to actively take the role in consolidating
private makers to avoid duplicate R&D and waste of resources. The government
should actively provide market incentives to private makers in order to guide the
further development of Japan’s robotics industry for the 21
st
century.”
164
Thus, since
the late 1990s the government has teamed up with major players from public, private
and academic sectors, and passed several robotics promotion laws for an overall
policy platform in promoting Japan’s robotics industry.
165

163
According to MITI’s market estimation in 1999, the manufacturing robot sector will reach 850
billion JPY in 2010 and 1.4 trillion JPY in 2025; bio-industries robot market will grow to 90 billion
by 2010 and 360 billion by 2025; public sector robot will have 290 billion JPY market size by 2010
and 990 billion JPY in 2025; medical and welfare sector will reach 260 billion JPY by 2010 and 1.1
trillion JPY in 2025; and home robot market will reach 1.5 trillion JPY by 2010 and 4.1 trillion JPY
by 2025.

164
MITI’s 1999 Survey Report on the Current Status of Robotics Industry.

165
According to METI, Japan’s major next-generation robotics promoters from public sector and
academia include the Kanto Bureau of Economy, Trade and Industry, Japan Robot Association
(JARA), Manufacturing Science and Technology Center, Intelligent Manufacturing Systems
Promotion Center (MSTC IMS Promotion Center), Micromachine Center (MMC), Japan Welding
Technology Center (JWTC), Fluid Power Technology Promotion Foundation (FPTPF), New Energy
and Industrial Technology Development Organization (NEDO), National Institute of Advanced
Science and Technology (AIST), Japan Science and Technology Agency (JST), Kawasaki Kanagawa
Robot Business Conference (Roboness), Gifu Robot Portal, Fukuoka City Industry Promotion Guide,
Fukuoka Prefecture, The Robot Industry Development Council, the Robot Society of Japan (RSJ), the
Japanese Society of Artificial Intelligence (JSAI), and the Japanese Society of Mechanical Engineers
(JSME).

163
Figure 3-7: Predicted Growth of Japan’s Next-Generation Robotics Market

Source: METI, 1999

This platform aims to simulate artificial markets (and military markets) by
two main strategies. One is to redirect Japan’s robotics R&D toward tri-use
technology (industrial, service, and extreme environment applications) by the HRP
project and the 21
st
Century Robot Challenge program. Second strategy is to
diversify robotics applications into various fields (especially to extreme environment
and military applications). It cooperates with different ministries such as MAFF,
METI, MEXT, and MOD along with numerous public, private, and academic
research organizations. Moreover, this cross-ministries institutional arrangement was
designed for AIST to act as a technological hub organization to transfer advanced
civilian robotics technology to TRDI for military applications.
In addition, this overall platform also aims to transform the industrial
structure of Japan’s robotics industry by five major mechanisms which reflect in

164
various government laws, policies and detailed projects. First is to enhance Japan’s
basic robotics R&D. Second is emphasizing and coordinating cooperation and
collaboration between public, private, and academic community. Third is to promote
smooth R&D results transfer and commercialization between universities and private
firms. Forth is supporting fast creation of new venture business for SMEs and
researchers. And last is to encourage participation from local governments and
organizations in establishing a focal point of complete supply chain for robotics
industry.
In terms of enhancing basic robotics technology R&D, the Diet passed the
Basic Act on the Promotion of Core Manufacturing Technology in 1999. It
authorizes METI to obtain a comprehensive plan to maintain and upgrade Japan’s
manufacturing technology competitiveness by promoting private firms’ R&D
activities with public financial support, providing technological advice, supporting
private firms to commercialize their R&D results, assisting patents application, and
enhancing their R&D cooperation with universities. In addition to that, the 2000
Industrial Technology Enhancement Act further authorizes METI to take necessary
measures to enhance industrial technology. These measures include revitalizing
different research entities and promote their collaboration, cultivating human
resource, preparing facilities and infrastructure, providing capital resource, and
promoting R&D results transfer among private firms, universities, and public
research organizations. Moreover, the Diet revised the Enterprise Rationalization
Promotion Law in 2002. It aims to promote rapid modernization of core industries’

165
machinery and equipment. It authorizes METI to provide necessary infrastructure,
subsidies and grants to private firms and universities in R&D, industrial experiment,
and innovative development of machinery and industrial equipments for the purpose
of enterprises rationalization.
In promoting joint R&D among public research organization, private
corporations, and universities, the 2000 Industrial Technology Enhancement Act
aims to revitalize different research entities and promote their collaboration and
R&D results transfer. It authorizes METI to promote universities’ R&D activities by
introducing more flexible applications of private capital pouring into public
universities in the forms of contribution, consignment, joint R&D, research grants. In
terms of R&D results transfer, the government supports the establishment of
Technology Licensing Office (TLO) in public universities with free access for
collaborating firms. It provides public funds to support private firms to
commercialize R&D results from universities.
On the other hand, this overall robotics industrial policy platform is carried
out by four major organizations, METI, AIST, NEDO and MSTC with participation
and support from other ministries such as MEXT. Within that, METI (as the
commander) takes charge of formulating overall policy platform, national programs,
and the robotics technology roadmap. NEDO (as the manager and policy
coordinator) acts as the policy hub organization (or policy link) to carry out detailed
project planning, coordinating, managing, and evaluating among METI, private
corporations, and academia. AIST (as the public researcher and research coordinator)

166
functions as the R&D hug organization (or R&D link) among public research
institutions, private R&D organizations, university laboratories, and major academic
societies. MSTC (as the secretary) takes the role as project implementation hub (or
implementation link) among NEDO, private corporations, and universities (Figure 3-
8).
Within this new institutional arrangement in carrying out Japan’s robotics
industrial policy, NEDO plays an important role in promoting robotics R&D
activities by its Proposal-Based Research Development Program (Table 3-12).
166

This program promotes and supports three types of R&D projects of robotics
technologies. The first type is the contract R&D project. It promotes medium- to
long-term, high-risk, and critical projects which are difficult for private sector to
carry out alone. It draws on the collaborative efforts of government, industry,
academia and organizes optimal research teams. Second, the cooperative agreement
project (theme-given, recruitment) supports short- to medium-term project for
practical application by private enterprises, which can produce an immediate
economic stimulus effect. Third is the basic research project. It provides grants for
researches devoted to the discovery of technology seeds that can lead to the
development of future industrial needs and applications. NEDO also provides

166
NEDO has adopted the Teian-Kobo system (competitive grand system) which was established in
1995 by METI. It aims to foster R&D activities which are considered highly promising and
innovative as the “seeds” for future industrial technology. It is modeled from the U.S. competitive
grant system (e.g., solicitation, peer-review system). There are various mechanisms of support of
competitive grant system such as the research grant for young researchers and the high-risk, pre-
competitive industrial R&D assistance projects.

167
“recommendations”, such as advice regarding changes in research content, covering
the entire project stages from theme selection to R&D implementation in order to
maximize project results.

Figure 3-8: Japan’s Next-Generation Robotics Promotion Organization Scheme

Joint R&D
JST
MEXT
METI
AIST
JARA
Public
R&D Org.
MSTC
Univ.

Industry
NEDO
AIST-INCS
SMRJ
SBIC
New VBs
SMEs
Local
PM
CSTP
RS
JSIA
JSME

168
Table 3-12: Types of NEDO’s Support R&D Projects

Project Type Recipient Term,
Scale
Selection
Process
Evaluation Objective
Contract R&D
(National Projects)
Consortium Up to 5
years with
cost share
(100%)
Request for
proposal/selection
committee
-Ex-ante
interview
- Ex-post
follow up
Mid to Long-term;
(Extremely high risk &
large scale)
Cooperative
Agreement Type
(Theme-given,
Recruitment)
Individual
company
Up to 2 (+1)
years with
cost share
(50%)
Teian-Kobo (note)/
Merit-Review (Figure
3-9)
-Ex-post
follow up
Short to Mid-term
(Could be
commercialized within
several years)
Basic Research
(Grant)
Universities,
Research
Institutes
Up to 2 (+1)
years with
grant
(100%)
Teian-Kobo
Merit-Review
-Ex-post
follow up
Basic Research
(Individual ideas)

Source: NEDO, 2007

Figure 3-9: NEDO’s Merit-Review Project Selection Process

Gate 1: Proposal reviewed by external reviewers
Technical Merit: Economic/Business Merit:
- Novelty, creativity & innovation of
technical seeds
- Presence of patents
- Technological tasks & compliance - Potential for practical application
- R&D planning & legitimacy of its context - Impact upon industry
- Legitimacy of the R&D implementation
structure
- Potential for academia and industry
Proposals
Screening/Classification
Gate 2: Proposal reviewed by the Review Board
Negotiation
Award
Debriefing
Source: NEDO, 2007

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3.4.2 National Humanoid Robot Project (HRP Project)
Starting from 1998, METI together with AIST, NEDO, and MSTC began to
promote the five-year (1998-2002), five billion JPY, collaborative (public, private,
and academia) National Humanoid Robot Project (HRP) under its Industrial Science
and Technology Frontier program. This humanoid project served to test the
government’s robotics-promotion institutional arrangement in collaboration,
specifying functions, integrating resources, formulating/implementing robotics
industrial policy, and incorporating and coordinating public-private-academia
collaborative R&D activities. Most importantly, it also provided an institutionalized
communication channel for government, industry, robotics society, and academic
community in forming consensus and a clear project objective of developing a
general-purpose (no specific function) humanoid robot that can initialize a mass
production spiral for Japan’s robotics industry.
The consensus and decision of developing a humanoid robot had four main
logics. First, as the general-purpose in nature, this collaborative project would not
hurt the participant’s comparative advantages of technology. Second, humanoid
robot is easy to attract public attention and gain support due to Japan’s animation
popular culture. For example, the project invited Mr. Yutaka Izubuchi, a famous
mechanical animation designer for the well-known “Gundam” robot, to design the
external appearance of the resulting robot from this project, the HRP-2 (he also
named the HRP-2 robot “Promet”). Third, this project signaled a policy shift to
promote non-industrial robotics technology and applications and showed the

170
government’s intention to develop new next-generation robot markets. And last, the
project functioned as a starting point to collaborate public, private, and academic
efforts to create a standardized common platform of both robotics software and
components for further development.
According to NEDO, the HRP project had two phases (Table 3-13). And it
was on a new scheme, the platform-based approach, which aimed to develop a
robotics common platform consisted of a humanoid robot (components) platform, a
virtual robot (software) platform, and a remote-controlled cockpit in the first
phase.
167
In the second phase, the project aimed to develop specific function
components complying with the adopted standard specification from phase I. This
phase also aimed to develop the robot to carry out five main tasks: plant
management, industrial vehicle operation, cooperative outdoor works, personal care
service, and building/home management.
Honda and Fanuc led the Phase I (1998-1999) which aimed to integrate and
sum up various cord robotics technologies from industry, academia, and
government.
168
This phase produced a humanoid robot (the HRP-1, from Honda’s

167
The platform-based approach is an antithesis of the conventional R&D method in developing a
robot where elemental technologies are developed first and then integrated at the final stage of the
project.

168
In my May 12, 2006, interview with Mr. Yuji Hatano (Manager of Corporate Communication
Division of Honda), he confirmed that Honda gave out the outdated P2 robot to AIST as a “black
box” without operation software or control equipment in order to stop METI’s repeated invitations to
ask Honda to join the HRP project. He stressed that Honda has NEVER participated in any of HRP
research activities as Honda does not need and does not want to participate in any public-initiated
project. He further said that, “the only job for the government is to establish social infrastructure and
related regulations for introducing robots to the society but not building robots to compete with the

171
P2), a tele-existence cockpit to control the robot and an equivalent virtual robot as
the software counterpart of the robot (Figure 3-10). The use of tele-existence cockpit
enables the operator to obtain realistic kinesthetic sensation of the robot’s motion.
And the virtual robot has the equivalent dynamics and geometric model to the robot
and that of its working environment. In phrase II (2000-2002), MHI and Tohoku
University aimed to improve the core technologies summed up from phase I and
targeted at five main applications of HRP-1 (Table 3-13). For instance, R&D was
carried out on the applications of humanoid robots to carry out such as maintenance
tasks of industrial plants and tele-operation of construction machines.

Figure 3-10: HRP-1 Humanoid Robot

Source: NEDO, 2000

private enterprises,” and “Honda is confident that the project can not result in any better robot than
Asimo.”

172
Table 3-13: Phase I & II of HRP Program

Phase I Phase II
Honda Motor MHI Robot Platform
Fanuc Tohoku U. (Utiyama Lab.)
Plant maintenance
field
Virtual Robot Platform Hitachi (Joint research Waseda U.)
Matsushita Electric Works Remote Control Cockpit
U. of Tokyo (Tachi Lab.)
Kyoto U. (Osuka Lab.)

Tsukuba U. (Sankai Lab.)
Personal care
service field
Remote Control Cockpit KHI
Tokyu Construction

Kyoto U. (Yoshikawa Lab.)
Operating
industrial vehicles
Virtual Robot Platform Fujitsu
Sogo Keibi Hosho
Management of
building & homes
Yaskawa Electric
Shimizu Corporation
Kawada Industries
Osaka U. (Arai Lab.)
Tokyo Institute of Technology
U. (Sampei Lab.)
Hiroshima City U. (Asada Lab.)

U. of Tokyo (Ikeuti Lab.)
Virtual Robot Platform U. of Tokyo (Nakamura Lab.)
Cooperative
outdoor works

Source: NEDO, 2000

Overall, this common platform strategy for modularized software and
components has allowed robot developers to share and exchange their R&D results.
That, in turn, can lower R&D cost, achieve higher efficiency, develop flexible and
diverse applications for further development. In my June 16, 2006, interview with
Mr. Akaike Kazuhiko (Chief Researcher at the Machinery System and Robotics

173
Division of Kawada Industries, who was in charge of the total specification design
for HRP-2 robot), he points out that the existence of different specifications from
robot makers is always a major headache and money-wasting cause in developing
new robotic systems. And in his words, “Without the government’s policy
coordination in integrating a standardized common platform, the problem will
remain at least 10 years, based on his estimation, and will largely delay the
development of Japan’s robotics industry.”
This project also served as the first public attempt to sum up Japan’s
advanced robotics technology from major actors at current state, standardize and
integrate the industry for better division of labor. At the same time, it was the starting
point for the government to formulate further and more comprehensive policies to
promote tri-use robotics technology. Moreover, it was also to test the government’s
public-private-academia collaboration strategy in attracting more participation and
investment from major players to challenge top technological hurdles. In 2002,
Kawada together with AIST released the advanced general-purpose HRP-2 robot
which is the final robotic platform from the HRP project (Figure 3-11). The total
robotic system was designed and integrated by Kawada Industries together with
AIST Humanoid Research Group with Yaskawa Electric Corporation provided the
initial concept design for the arms. AIST 3D Vision Research Group and Shimizu
Corporation provided the vision system. HRP-2’s body is made of lightweight
materials and its high density electronics installation allows it to forgo the common
backpack (contains computers, electronics and batteries) for humanoid robots. It has

174
30 Degree of Freedom (DOF) including 2 DOF for the waist and the cantilevered
crotch joints making it possible to walk on uneven surfaces, tipping-over control, and
getting up from fallen position. In addition, the robot has been tested for human-
interactive operations in open space and is able to develop application software due
to the open software architecture.
Another important achievement of the project is the open software
architecture, known as the OpenHRP humanoid simulator, which various
applications of humanoid robotics can be investigated. As Honda provided its P2
robot as a black box in phase I, AIST had to replace the controller biped locomotion
which has been developed on V-HRP (a virtual humanoid robot platform). Later, V-
HRP was replaced by the OpenHRP on which AIST developed the controllers
portable to the hardware. The simulator was built on the Common Object Request
Broker Architecture (CORBA) which is standard software architecture, and the real-
time controller of the robot is run on the Advanced Real-Time Linux (ART-
Linux).
169
With the unification of the controllers and consistency between the
simulated and real robots, users are able to develop and explore various fundamental

169
The CORBA is an object oriented environment for building distributed object-oriented
applications. It allows objects on one computer to invoke the methods of objects on other computers.
The CORBA specification was developed by the Object Management Group (OMG), an industry
group representing computer manufacturers, independent software vendors, and a variety of
government and academic organizations. CORBA makes use of objects that are accessible via Object
Request Brokers (ORBs). ORBs are used to connect objects to one another across a network. An
object on one computer (client object) invokes the methods of an object on another computer (server
object) via an ORB. CORBA ORBs are middleware mechanisms. CORBA can be thought of as a
generalization of Remote Procedure Call (RPC). ART-Linux is a hard real-time kernel developed with
robotics applications. Real-Time is accessible from user level and does not require special device
drivers.

175
technologies and applications for humanoid robotics based on the OpenHRP as a
useful virtual platform. In addition, this open platform is very efficient and low-cost
in inheriting software library from one hardware to another. Therefore, in the final
stage of HRP project, the OpenHRP and controllers examined on HRP-1 was applied
to the later HRP-2 robot.
From 2003, the OpenHRP was open to the public for “free access” and the
HRP-2 robot was commercialized by Kawada at 38 million JPY for five year rental
rate as a humanoid robot R&D platform. In addition, the HRP project was also to test
the government’s institutional arrangement in passing advanced robotics
technologies from top-end makers to SMEs and new venture businesses for faster
commercialization. For instance, with the support from AIST-INCS, a new joint
venture, the General Robotix Inc. with initial capital of 10 million JPY, was
established in October 2002. Its main businesses are commercializing and applying
OpenHRP into practical uses, supporting, developing, and distributing the HRP-2
robots and other R&D results from the HRP project. This joint venture is an
excellent example of AIST’s function as a technological hub organization for
integrating and transferring advanced robotics technology to high-tech startups and
SMEs.

176
Figure 3-11: HRP-2 Humanoid Robot

Source: AIST, 2003

In sum, the HRP project is a good example to demonstrate the market failure
mentality of both public and private elites. For example, in my July 20, 2006
interview with Mr. Shigeoki Hirai, Director of the Intelligent Systems Research
Institute of AIST, in METI’s Robot Technology Strategy Map Conference, he said

177
that, “Adequate market competition is good, but too much competition will make
lots of problems, such as wasting investment and reduce profit,” and “It is the
government’s basic function to solve this kind of problems for its nation’s industrial
development.”
170
Through the project, the government has successfully simulated
artificial markets in providing market incentives to redirect the R&D of Japan’s
robotics industry. At the same time, it has improved some technological weaknesses
of the industry and reached the following achievements. First, it had verified the
teamwork of METI, AIST, NEDO, and MSTC in promoting next-generation robotics
industry. Second, the project, at certain level, summed up Japan’s current robotics
technology from major players (public, industry, and academia) as a starting point
for the government to formulate further promotion policies. Third, the resulting
common platform of modularized robotic software and components has acted as a
sound foundation in unifying domestic robotics industry and allowed robot
developers to exchange and share their R&D achievements. Forth, this project had
also provided an important cooperation experience for the public-private-academia
collaboration and attracted lots of private and academic participation. In addition, it
had verified the government’s institutional arrangement in promoting technology
transfer to SMEs and creation of new venture businesses for rapid commercialization
of robotics technology. And the last, this project had established an overall robotics-
promotion system in further exploiting the advantages (such as obtaining public

170
Mr. Shigeoki Hirai, Director of the Intelligent Systems Research Institute of AIST, is one of the
most important figures of Japan’s robotics industry and also the major promoter/executor of many
next-generation robotics projects.

178
attention/support and successful creation of public topic) of developing a humanoid
robot for the following HRP-3 and HRP-4 projects.
Therefore, in 2003 METI announced another 5-year (2002-2006) Key
Technology Research Promotion Program with a robotics project entitled Key
Technology Research and Development for Humanoid Robot Operating in Actual
Environments or known as the HRP-3 project. This project used HRP-2 as the
prototype for further development. It was also sponsored by METI and NEDO,
spearheaded by Kawada Industries and supported by AIST and KHI. The final policy
goal was aiming to build the most advanced human-friendly humanoid robotics
system. Within the project, Kawada took charge of developing the water- and dust-
proof hardware technology for this robot to work in outdoor environment. AIST
Intelligent Systems Research Institute Humanoid Group took the role in developing
software and KHI developed the remote-controlled cockpit. The final products were
the HRP-3 Promet MK-II robot by Kawada Industries and AIST’s OpenHRP-3
(Open Architecture Humanoid Robotics Platform) software platform (Figure 3-12 &
3-13).
171

171
The OpenHRP Open Architecture Humanoid Robotics Platform is part of the Next-Generation
Robot Artificial Intelligent Technology Development Project (2007-2011), a sub-project of Japan’s
21
st
Century Robot Challenge Program. It was developed by AIST, University of Tokyo, and General
Robotix Inc., with AIST released the information on June 21
st
, 2007.

ularize
Autonomous and
Multi-Function
General Robots

ISIISIF
FiFirms
and Scope of
Robotics Industry

METTwA
BaAIST
hnology
Application and
Market Creation

OtOther
Ministries
mote Practical
Cases

Pub
mote
Standardization

MOD
EXMEXT
Promote
Common
Platform

omote
Social AcceptaCSTP

RS

179
Figure 3-12: HRP-3 Promet MK-II Humanoid Robot

Source: AIST, 2007

HRP-3 is a hybrid of full autonomous and remote-controlled robot with
160.6cm in height, 68kg of weight including battery. It has 42 DOF (12 more DOF
than HRP-2), and two axles in the waist for carrying out more flexible and
complicated tasks. Its 7 DOF (1 more than HRP-2) arm, 6 DOF (5 more than HRP-2)

180
hand, enhanced vision technology, wider head moving span, and water- and dust-
proof technology, allow the robot to carry and use various power tools for actual
industrial operations. In addition, the newly developed slip-detection equipment,
joint axles, high-performance actuators, and better coordination between feet and
legs further enhance the robot’s walking stability on slippery surface.

Figure 3-13: Remote-Controlled Cockpit of HRP-3 Robot

Source: AIST, 2007

181
With several public demonstrations and experiments of HRP-3 robot in 2007,
METI terminated its Key Technology Research and Development for Humanoid
Robot Operating in Actual Environment (2002-2006) in March 2007. It initiated
another new project, the User Centered Robot Open Architecture (UCROA, 2006-
2009) or known as the HRP-4 project, under AIST’s Industrial Transformation
Research Initiative. The project is also a government-industrial-academia joint
project with intended application in the entertainment industry including the use at
fashion shows.
172
This new project has produced a humanoid robot (the HRP-4C, C
stands for cybernetic human) by AIST’s Intelligent Systems Research Institute
Humanoid Research Group, which was publicly demonstrated on March 16, 2009
(Figure 3-14).
This new robot has a female human appearance of 158cm tall and 43kg
weight (including battery) based on the 1997-1998 average Japanese females’ joints
and dimensions. It can interact with humans using speech recognition and synthesis.
However, the main technological breakthrough of this human-look robot is the
motion-capturing technology developed by AIST. Most current humanoid robot
locomotion assumes no slip motion but instead by making many small steps in turn
or stop, which usually takes longer time and makes unnatural motion. Therefore,
AIST has developed the advanced motion-capturing technology for the HRP-4 robot
to gather actual human motion data, predict the amount of slip forces, and generate

172
According to March 24, 2009, Nikkei Shinbun, the HRP-4C robot participated in the 8
th
Japan
Fashion Week in Tokyo on March 23, 2009.

182
slip motion in turning. As such, this newly developed walking control technology
enables the robot to capture and mimic human motions to produce natural walking
motion and general movements. As such, the HRP project is not just a one time deal
but a decade long multi-billion JPY national effort to promote humanoid robots as a
mean to develop tri-use robotics technology.

Figure 3-14: HRP-4C Humanoid Robot

Source: AIST, 2009

183
3.4.3 The 21
st
Century Robot Challenge Program
With the experience from the HRP project, in 2001 September, Japan’s CSTP
included robotics industry into both manufacturing and IT fields of its Second
Science and Technology Basic Plan (2001-2006). The plan has authorized METI to
formulate and implement the nation’s overall next-generation robotics policy
platform involving MEXT and other ministries. In 2003, METI launched the 21
st

Century Robot Challenge Program with a subtitle of “Robot Technology to Change
Our Life.”
173

This program is a much larger in scale with wider government institutional
cooperation, broader collaboration networks from industry, universities, and public
R&D organizations. It has more participation from diverse actors in different
industries, involves more public and private resources, plans for wider R&D
spectrum, and challenges higher technological hurdles. There were three major
projects in this program. First was the Project for Core Technology R&D for Next-
generation Robot (2003-2005). It aimed to promote modularization technology of
basic robotic components such as small and high performance motors, sensors, and
image-voice recognition technologies in order to achieve early commercialization
and practical application of robot technology. Second was the Project for Software
Platform for Next-generation Robot (from 2002-2004). It aimed to develop a
common platform of robotic software in order to standardize and unify different

173
According to NEDO, the 21
st
Century Robot Challenge Program has received a budget of 3.73
billion JPY in 2004, 2.82 billion JPY in 2006, and 4.46 billion JPY in 2007.

184
makers’ specifications for robotics components and modules. And the last project
was the Project for Human-Coordinated and -Coexist Robot (from 1998-2002). This
project was the original HRP project initiated in 1998, and was merged to the 21
st

Century Robot Challenge Program in 2003. In 2004, with active participation and
positive feedback from universities and private firms, this program evolved and
became a more comprehensive and diversified program (under METI’s Innovation
Superhighway concept) with 8 major projects (6 major R&D projects, 1 R&D
supporting project, and 1 business project) and many related activities in social
infrastructure and robotics regulation formulation (Table 3-14 & Figure 3-15).

Table 3-14: Projects of the 21
st
Century Robot Challenge Program

Project Period Budget Project Detail
RT Middle-Ware Development Project 2002-
2004
250
million
Modularization of
Robotic Software
Development Project for Developing a
Common Platform of Next-generation
Robots
2005-
2007
1.2 billion Modularization of
Robotic Components
Basic Technology Development Project
for Practical Application of Human-
Support Robots
2005-
2007
2.7 billion High-Safety and Flexible
Motions Service Robots
Project for Strategic Development of
Advanced Robotics Elemental
Technologies
2006-
2010
3.3 billion
(till 08’)
Mission-Driven Robots in
service, industrial, and extreme
environment applications
Next-Generation Robot Artificial
Intelligence Technology Development
Project
2007-
2011
4 billion
(till 08’)
7 main AI technologies
Basic RT Open Innovation Promotion
Project
2008-
2011
1.3 billion
(till 08’)
Utilize the above achievement
for innovative, flexible and
diverse robotic applications
Project for the Practical Application of
Next-Generation Robots (supporting
project)
2004-
2005
4.13
billion
Supporting development of 9
practical robots and 65 prototype robots for
2005 Aichi EXPO demonstration and
experiments
Support for Creating Service Robot
Market Project (business project)
2006-
2007
750
million
Transfer and commercialization
of robotics technologies

185

Figure 3-15: METI's Technology Roadmap of Japan's Next-Generation Robotics; Source: METI/NEDO

186
Based on my analysis, this new program aims to enhance robotics-promotion
institutional cooperation among METI, AIST, NEDO, MSTC, and other government
agencies such as MEXT. It aims to team up with major private corporations, famous
universities, and major public R&D organizations to develop a common platform of
modularized software and robotic components. It also functions as a platform to
tackle top-end technological challenges (such as AI technology) of next-generation
tri-use robotics technology for innovative, flexible and diverse applications in
service, extreme environment, and industrial fields. It also aims to smoothly pass the
R&D results to SMEs and new venture businesses for rapid commercialization, fast
creation of new markets, and spillover to other industries for the goal of a high
division of labor and a complete supply chain of its robotics industry. In addition, the
government has adopted three major strategies in incorporating different projects to
achieve the policy objectives: the common platform strategy, diversifying
application strategy, and fast commercialization strategy.

3.4.3.1 Strategy One: Common platform
This strategy started with the 2002-2004 RT Middle-Ware Development
Project. It was to continue the effort from the HRP project’s common software
platform and aimed to modularize robotics software as a RT middleware for diverse
and wide-ranging needs of different robot developers. With modularizing various
components of a robotic system such as the actuator and sensor through the
middleware, robot makers are able to build robots by integrating components for

187
specific or innovative functions. That, in turn, can achieve higher flexibility, lower
R&D cost, and higher efficiency for makers in developing new robotic systems. In
addition, the middleware complying with the adopted specification (from the HRP
project) also helps to establish a uniform framework for interface specifications and
to promote interoperability among robot modules. And all the strengths, in turn, will
contribute to expand and create new robot markets and spillover to other industries.
As such, AIST developed the first RT Middleware ver. 0.1.0 in 2003 and the
OpenRTM-aist-0.2.0 in 2004 and were distributed to collaborators at no cost. This
encouraged the dissemination of project achievements while helping to accumulate
technical feedback. The project has been completed in 2004, AIST still continues
developing new middleware. It further released the advanced OpenRTM-aist-0.4.0 in
2006 which also complies with the adopted standard specification.
On the other hand, the government utilized the 2004-2005 Project for the
Practical Application of Next-Generation Robots to promote the development of
various robots, technologies, and components from public, private, and universities
for the 2005 Aichi EXPO. This project also functioned as the preparation for later
robotic component modularization. This project aimed to support commercializing 9
practical robots that will reach the market by 2010 such as cleaning robots, security
robots, childcare robots, reception robots and intelligent wheelchair robots. It had
also supported developing 65 prototype robots which will be in practical use around
2020 (Table 3-15 & Appendix C).

188
Table 3-15: NEDO’s 9 Practical Robot Systems

Field Company & Robot
Name
Themes Core Technologies
Matsushita Elec. Works,
Ltd. “Sweepy”
Outdoor cleaning robot with an
autonomous moving system
Obstacle detection and avoidance
capability; Recognition of
surrounding area info.
Cleaning
Fuji Heavy Industry Ltd.
“Subaru RoboHeighter”
Outdoor cleaning robot
Outdoor garbage can
Carrying robot
Cooperative control of multiple
robots; Garbage can recognition and
collection technology
Mitsubishi Heavy
Industry, Ltd.
“Wakamaru”
Practical reception robot system
with high communication
capability
Recognition of 4 different languages;
Autonomic movement and obstacle
avoidance capability
Reception
Advanced Media, Inc., &
Kokoro Co., Ltd.
“Actorid”
Android reception robot closely
resembles a human, using 4
different languages
Achieve a wealth of expressions using
the face and hands; Speaker-
independent conversation capability
Shogo Security Service
Co., Ltd. “Alsok Guard
Robot I”
Security
Tmsuk Co., Ltd. “Mujiro
& Ligurio”
Outdoor security & information
service robot & remote
supervisory control system
Autonomic movement and obstacle
avoidance capability; Remote
supervisory; Fire detection capability
Childcare NEC Corporation
“PaPeRo”
Childcare robot Face recognition technology; Hands
free voice recognition technology;
Mobile phone link function
Intelligent
Wheel-
chair
Aisin Seiki Co., Ltd. &
Fujitsu Limited “TAO
Aicle”
Next-generation intelligent
autonomous wheelchair
High accuracy orbit control
technology using GPS and RFID
(micro wireless IC tag)

Source: NEDO, 2005

All of them were designed and fabricated to introduce the current level of
robotics technology development and were demonstrated and experimented at Robot
Island (a simulated living environment) of the 2005 Aichi World Exposition.
174
The
9 practical robots were used to provide actual services to visitors, participants, and
staff in the exhibition site. In the area of prototype development, the project looked
to support indigenous robotics technologies that could lead to diverse applications

174
From my June 10-17, 2005, field trip to the Robot Island and Prototype Robot Exhibition Special
Event of the 2005 Aichi World Exposition.

189
for a variety of different environments such as underground and underwater. This
project also aimed to promote inter-industry collaboration and cooperation between
government, industry, and academia to identify challenges for the dissemination of
robots.
And for the purpose of higher flexibility and efficiency in composing
different purpose robots, the development of efficient modularized and standardized
robotic components is necessary. It is especially important and indispensible in some
important technological bottlenecks such as image recognition (the eyes),
speech/voice recognition (the ears), moving/exercise parts (legs and arms), and
remote control devices. As such, the 2005-2007 Project for Developing a Common
Platform of Next Generation Robots further integrated all the efforts and results from
the HRP and previous projects. It aimed to develop basic standardization and
modularization technology of robotic components as a common interface connecting
various parts of next-generation robotic systems. In addition, the modularized robotic
components together with the RT middleware have allowed makers to advance in
their specialties and contribute to collaborative projects. It also contributes to speed
up technological spillover to other industries, and make new entries to the industry
easier.
One of the best examples developed from this project is Fujitsu’s real-time
3D stereo image LSI chip (Large-Scale Integrated Circuit). The environment
sensing/detection technology is one of the most important building blocks for next-
generation intelligent robot in industrial, service, and military applications, and in

190
other industries. This is also the best case to demonstrate the government’s current
efforts in redirecting Japan’s robotics R&D toward tri-use purposes. Fujitsu Ltd. and
Fujitsu Laboratories Ltd. together released the LSI chip on September 12
th
, 2007
from their joint project supported by NEDO. This chip processes real-time 3D stereo
image to enable robots to recognize shapes and moves of subjects in real-time. It can
also sense the depth based on parallax between images transmitted from robot’s two
side cameras just like human eyes. And the chip can perform high-speed product-
sum operation processing on image data with its 256 parallel computing circuits.
Moreover, it can extract about 2,000 edges, corners and other distinctions with its
dedicated circuit for calculating color gradation patterns in an image. Furthermore,
the chip supports matching at more precise resolutions than the pixel resolution, as
well as matching by enlarging, downsizing and rotating patters that look different
depending on viewing distances and angles. Therefore, given its compact size and
low power consumption, the chip can be applied to relatively small next-generation
robots in industrial, service, and extreme environment applications.
In addition, the modularized robotic components together with the RT
middleware act as a sound foundation to target at higher technological challenge, the
AI technology, by the 2007-11 Next-Generation Robot Artificial Intelligence
Technology Development Project for next-generation intelligent and tri-use robots.
This project aims to utilize mechanical engineering, brain science and IT engineering
to develop seven important AI technologies for next-generation robots to overcome
the limitations of single purpose robot in diverse and rapid changing environments.

191
The seven target areas include a robot AI software platform (for easy utilization and
connection of following technologies), task AI for manufacturing field, task AI for
social and life fields (intelligence to recognize and handle objects), motion AI for
service industry field (coexist with human), high-speed motion AI for public space
field (for more efficient moving of multiple objectives), motion AI for social and life
fields, and communication AI for social and life fields (speech and body language
recognition technology).
For instance, the robot AI software platform is carried out by Advanced
Telecommunication Research Institute International (ATR) in collaboration with
Toshiba, NTT, and MHI aiming to connect different robots for collaborative tasks. In
December 2008, ATR held a public demonstration experiment to collaborate its
Robovie-II with Honda’s Asimo to work accordingly in a coffee shop to delivery
food in Osaka’s Universal Citywalk.
175
This experiment aimed to prove this network
platform’s capability in connecting non-setup robots for collaborative tasks
simultaneously. In addition, ATR has utilized its distance-detection laser technology
to sense and structure surrounding environment information for robots to carry out
their tasks. Although Honda has not directly participated in this R&D project,
however, by providing its Asimo for ATR’s 2008 experiment, it signals Honda might
be forced to change its policy to move toward more cooperative with other Japanese

175
From my December 13-14, 2008, field trip to NEDO’s Robot AI Software Platform Public
Demonstration in Osaka’s Universal City Walk.

192
robot makers. Moreover, this network platform technology is also an important
building block for the next-generation intelligent robot used for military applications.
In sum, this common platform strategy of standardizing/ modularizing
specifications of both software and hardware is an excellent case to demonstrate the
government’s intention and efforts in redirecting Japan’s robotics R&D toward tri-
use purposes. It aims to enhance the labor of division of a complete supply chain of
Japan’s robotics industry and diversify application of tri-use robotics technology.
And it also demonstrate the government’s intention to dominate the future
development of domestic robotics industry. Moreover, it also functions as Japan’s
first step to push for international standardization of robotics industry for the early
domination of large global market.

3.4.3.2 Strategy Two: Diversifying application
Starting from 2005, the government began to promote more flexible and
diverse applications (service, extreme environment, and industrial applications) of
the robotics technologies from the previous four major R&D projects. There are
three stages of this strategy to match the progress of the major R&D projects: service
robot, government-specified missions, and innovative applications. In the first stage,
the government aimed to promote next-generation welfare robots used in hospitals,
welfare centers, and private homes by its 2005-2007 Basic Technology Development
Project for Practical Application of Human Support Robots. As welfare robots have
more physical contact with people, therefore this project aimed to promote the

193
development of welfare robots and technologies with advanced safety and flexible
motions such as rehabilitation-assist robot, standing-up and walking-assist robot,
bathroom and getting-up-from-bed assist robot, with the application of user-centered
concept in early stage of R&D.
In the second stage, the R&D results of modularized robotic software and
components, along with various advanced robot systems and technologies developed
for the 2005 Aichi EXPO, were widely applied to service, extreme environment, and
industrial applications. Therefore, based on METI’s Strategic Technology Roadmap
for robotics, and prediction of future market needs and social needs, METI initiated
the 2006-2010 Project for Strategic Development of Advanced Robotics Elemental
Technologies. This project aims to pick robot makers to take the challenging
government-specified R&D missions to develop and utilize necessary robot systems
and associated core technologies in order to come up with specifications to fulfill the
missions. It also aims to spillover to B2B and B2C fields and apply RT to other
fields such as auto and IT industries with the collaboration of related government
organizations and ministries. As such, in 2006, NEDO chose six main missions and
are currently carried out by several cutting-edge robot developers: 1) industrial robot
system to pick up soft and flexible objectives by Mitsubishi Electric Corporation, 2)
human-robot cooperation type cell production assembly system by Fanuc Ltd, 3)
cleaning manipulation RT system by Kagawa University, Purex Co. Ltd., Kagawa
Prefectural Industrial Technology Center, Shikoku Industry and Technology
Promotion Center, and Takarada Electric Industry Co., Ltd., 4) autonomous robot

194
shipping and transportation system by AIST, Keio University, and Murata
Machinery Ltd., 5) RT system to travel within disaster-affected buildings by IRS,
Tohoku University, AIST, National Institute of Information and Communication
Technology (NICT), ThinkTube Inc., BL Autotec Ldt., Bando Chemical Industries
Ltd., and HyperWeb, and 6) construction and industrial waste disposal RT system by
Tokyu Construction.
In the last stage, the government started the 2008-2011 Basic RT Open
Innovation Promotion Project. It has aimed to tackle top technological hurdles in
developing innovative and more specific applications in service, extreme
environment, and industrial fields by utilizing the modularized robotic software and
components and the seven critical AI technologies (Table 3-16). More specifically,
R&D activities are carried out on three areas. The first area is the next-generation
industrial robots and robotic production systems which can handle flexible goods and
work at human-robot cooperative cell production and assembly systems. Second, the
program aims to achieve a manipulation RT system for cleaning tasks, elderly care,
and a conveyance robot system in the area of service robots. And the last, in extreme
environment applications, the R&D activities have been carried out on the RT
systems to travel within disaster-affected buildings, and industrial waste disposal
handling RT systems.

195
Table 3-16: Tri-Use Robotics Technologies

Field Mission Major Field Required R&D
Service robot House keeping; Sensing
communication;
3D distance sensor, sense of touch
sensor, human behavior data mining
technology, advanced recognition
technology;
Next-generation
industrial
robots
Robots that work
together with
humans in
assembly line;
Safe operation, high-
speed media processing;
Self-analysis and self-repair, safety
soft actuator, algorithm for high-speed
three-dimensional view and sound
source orientation;
Robot in
extreme
environment
Speedy support
robot in
dangerous areas;
High-speed operation,
high-speed moving in
real environments;
Speedy actuator, high-speed high
efficiency CVT, artificial muscle,
dynamic obstacle avoidance structure,
dust-free, anti-radiation structure for
robot parts junctions;

Source: NEDO, 2006

3.4.3.3 Strategy Three: Fast commercialization
There are three main focuses of this strategy: technology transfer and creation
of venture business for rapid commercialization, local robotics focal point, and other
robotics promotion activities. The first focus is for rapid creation of new robot
market and fast commercialization of robotics technology developed from previous
R&D projects. The government has initiated several laws and detail projects such as
the 2006-2007 Support for Creating Service Robot Market Project in promoting
smooth R&D results transfer from universities and public R&D organizations to
private enterprises (especially SMEs) to support creation of new venture businesses.
The Diet passed the Act on the Promotion of Technology Transfer from
Universities to Private Industry in 1998 authorizing METI and MEXT to promote
academic R&D becoming more practical oriented and further progressing by

196
supporting fast creation of venture business through R&D result transfer from public
R&D institutions and university laboratories to private enterprises. This law also
authorizes SMRJ to utilize the Industrial Structure Improvement Fund (ISIF) for
providing necessary subsidies, loan, or loan guaranty to carry out detailed plans in
transferring R&D patents to private enterprises. In addition, the SMRJ collects and
provides necessary information and data to private firms for smoothly transferring
specific technologies. Moreover, the 1999 Law for Facilitating the Creation of New
Business further enables METI to utilize ISIF fund to promote start-up and venture
business for SMEs and researchers with subsidies, debt guarantees, exempt from
limits of stock options, and even equity investments. At the same time, the 2008
revised Act on Special Measures for Industrial Revitalization authorizes METI and
SMRJ to provide capital support, facility, land development, and consultation and
training to revitalize productivities of SMEs. The law also aims to revitalize SMES
by restructuring their businesses, reorganizing share businesses, flexibly integrating
and applying business resources in business innovation, and assisting to obtain
patents from universities and public R&D organizations. It also authorizes the Small
& Medium Enterprises Business and Consultation Co., Ltd. (SBIC) to further
enhance the capital resource to SMEs for introducing business innovation
equipments such as robots.
Moreover, the Small and Medium-sized Enterprise Investment Business
Corporation Act authorizes METI to supervise SMRJ in revitalizing SMEs,
especially in the R&D results transfer from universities coded in the 1998 Act on the

197
Promotion of Technology Transfer from Universities to Private Industry. As such,
with support from METI, AIST established AIST-Innovation Center for Start-ups
(AIST-INCS) on October 15, 2002 under a five-year (2002-2007) project titled the
Strategic Research Base Upbringing. The project has also been subsidized by MEXT
with annual budget 1 billion JPY from its Special Coordination Fund for Promoting
Science and Technology to promote technological seeds in creating technology-
oriented venture businesses. The project was an attempt to copy the U.S.
“entrepreneur-ship” with necessary public financial and legal supports such as
transfer of intellectual property rights, receive exclusive licenses, receive reductions
or exemptions of license fees, rent space in AIST, receive reductions or exemptions
of facility charges, etc.
The second focus is to encourage and attract participation from local
governments and organizations, universities, and enterprises. The government has
initiated several laws and detail policies in establishing a focal point of complete
supply chain for robotics industry in Osaka. In 1999, the Basic Act on the Promotion
of Core Manufacturing Technology has authorized METI to assist and encourage
local governments to actively participate in policy formulation and implementation
in promoting Japan’s robotics technology by setting up local industrial cluster (for
cultivating more interaction and cooperation between public, private, and
universities’ research organizations). It has also authorized METI to provide
necessary infrastructures, facilities, human resources, information, and smooth
capital resources for the same purposes. As such, METI’s 21
st
Century Robot

198
Challenge Program has planned to establish an integrated robotics industrial cluster
or so-called “Knowledge Capital Zone” in Osaka. It will, in 2011, become a next-
generation robotics industry focal point, a complete robotics industry supply chain,
and also a strategic location intended to facilitate robotics industry (Figure 3-16).
176

This cluster will be home to major public research institutes, famous universities,
and cutting-edge corporations of Japan’s robotics industry. It has also aimed to
provide robotics infrastructure to incorporate their R&D efforts by providing
efficient information exchange platform and robotics industry supply chain database,
expanding market functions through public relation activities and regular robot
demonstrations, and enhancing capital investment and venture business support. In
addition, the zone is designed to hold international level robotics events, induce
private investment, promote public understanding of next-generation robotics, and
conduct safety standardization and evaluation.

176
According to NEDO, as of January 2009, there are more than 200 public, private, and university
R&D organization participating in this integrated robotics industrial cluster with six major categories
of robotics technologies. 1) Software: artificial intelligence, motion control, sensor information
processing, action control. 2) Motor control technology: motion control for wheel and crawler, two-
legged locomotion control, multi-legged locomotion control, robot manipulation, facial expression
control. 3) Actuator: servo motor, gel actuator, polymer actuator, gear motor. 4) Recognition
technology: self-localization, image recognition technology/sensor, speech recognition
technology/microphone, ultrasonic sensor, photoelectric sensor, tactile sensor, force sensor, odor
sensor, gyro sensor, rotary encoder, force feedback technology, omni-directional sensor. 5) Power
sources. 6) Structural components and exterior materials.

199
Figure 3-16: Integrated Robotics Industrial Cluster in Osaka

Source: Office of Urban Revitalization and Promotion, City of Osaka, 2008

And the last focus is to gain public attention and support and at the same time
increase public understanding toward current development of next-generation
robotics industry. It also aims to support creation of new markets. Thus, from 2006,
METI and NEDO together have established the annual Robot Award. The program
divides robots into four categories: industrial, service, public and frontier (extreme
environment), and parts and software (Table 3-17).
177
The selection committee

177
According to NEDO, public and frontier robot category includes robots designed to work for
special purposes, such as survivor search and recovery operations at disaster sites and space and deep-
sea exploration.

200
evaluates entries from the viewpoint of contribution to and potential for future
market development with criteria including social needs, value from the user’s point
of view, and technological innovativeness. (Table 3-17). In addition, METI and
NEDO also held or sponsor regular or irregular robotics promotion events and
activities such as the 2005 World Exposition in Aichi, Core-Tech Japan, RoboTrex,
RoboCup, and World Manufacturing Summit.
178

178
The robot project of Japan’s World Exposition 2005 is the largest ever robot-human interaction
experiment in the world. It was comprised of working robots, the prototype robot exhibition, and the
robot station. The working robots demonstrated tasks such as clean, patrol, and guide visitors. The
Core-Tech Japan is primarily for domestic manufacturers and university technology licensing offices.
It features around 200 exhibits ranging from electronic components, artificial intelligence and
diagnostic technologies, aircraft and automotive components, manufacturing systems software, to
sensors and motors. The RoboTrex is a robotics R&D and trade exhibition with exhibitors
demonstrating functional robots, element technologies and representing university, TLOs and research
organizations. The RoboCup is an international joint project in promoting AI, robotics, and related
fields. It chooses to use soccer as a central topic of research, aiming at innovations to be applied for
socially significant problems and industries. The World Manufacturing Summit is an open symposium
to gather Japan’s leading robotics thought leaders to promote the manufacturing sector for the 21
st

century.

201
Table 3-17: Japan’s Annual Robot Award from 2006-2008

Field 2006 2007 2008
Industrial - MOTOMAN-DIA10 &
IA20 (Yaskawa Electric)
- High-speed reliability
verification robot
(Denso Wave)
- M-430iA Robot Arms
(Fanuc)
- Pharmaceutical Container
Replacement Robot
(Tsumura & FHI)
- XR-G Series built-in robots
(Denso Wave)
- MOTOMAN-CDL3000D
(Yaskawa Electric)

Service - Robotic building
cleaning system (FHI
and Sumitomo)
- My Spoon (SECOM)
- Paro (Intelligent
System/ AIST/
Microgenics)
- MR Image-Guided
Surgical Robotic System
(Note)
- LEGO Mindstorms NXT
(The LEGO Group)
- HOAP (Fujitsu)
- miuro (ZMP)
- Robotic Blood Sample
Courier System
(Matsushita Electric)
- Omnibot 17µ i-SOBOT
(Tomy Company, Ltd.)
- Book Time (Nishizawa
Electric)
- Rice-planting robot
(National Agricultural
Research Center, National
Agriculture and Food
Research Organization)
- e-nuvo (ZMP)
Public Sector
(Extreme
Environment)
- Tele-operated
construction equipment
(Fujita, MLIT)
- Urashima UUV
(JAMSTEC)
- Endovascular Surgery
Simulator – EVE (FAIN-
Biomedical Inc. & Nagoya
U.)
- Fire-Fighting Robot
(Note)
- Active Scope Camera
(Tohoku U. & IRS)
Parts &
Software
- URG Series scanning
laser range finders
(Hokuyo)
- KHR-2HV (Kondo),
- Squid-fishing machine
(Towa Denki)
- HG1T/HG1H teaching
pendant (IDEC Corp.)
- OpenRTM-aist-0.4.0 RT
middleware (NEDO, AIST,
JARA)
- Mini AC servo actuators
(Harmonic Drive Systems)
- ORiN open network
interface for factory
automation equipment
(Denso Wave)
- Ultra-small three-axis
tactile sensor MEMS chip
(Uni. of Tokyo and
Panasonic)

Source: Adapted from METI.
Note: MLIT, Ministry of Land, Infrastructure and Transport; IRS, International Rescue System
Institute; MR Image-Guided Surgical Robotic System: Kyushu University, Hitachi, Ltd., Hitachi
Medical Corp., MIZUHO Co., Ltd., University of Tokyo, and Waseda University. Fire Fighting
Robot: Komatsu Ltd., IVIS, Inc., I.DEN Videotronics, CyVerse Corp., Maruma Technica Co., Ltd.

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In sum, the government’s 21
st
Century Robot Challenge Program has
functioned as larger scale artificial markets to provide more market incentives in
redirecting robotics R&D toward tri-use technology and diversifying applications in
service and extreme environment. It has also achieved a lot more. First, it has
enhanced METI’s institutional arrangement in promoting Japan’s next-generation
robotics industry and at incorporated more public actors. Second, it has deepened the
collaboration of government, industry, and academia, and involved more actors from
different industries. Third, this program has produced numerous technological
breakthroughs from tackling top-end technological challenges. The critical
breakthroughs include such as in AI technology, which are the key to next-
generation tri-use robotics applications. In addition, it has made some non-industrial
robotics applications practical at current stage. At the same time, it has set up a good
foundation for further advancing in diversifying robotics applications.
Forth, this program has resulted in many technology transfer and new venture
businesses in promoting rapid commercialization and creating new markets.
However, in most cases, SMEs were excluded from large scale R&D projects. Still,
the government tends to team up with large enterprises, major public institutions, and
famous universities and provide them with most public financial support to challenge
top-end technological hurdles.
The Association for Market Creation of the Future Generation Robots’
decision to seek for partnership with Korea in 2008 is the best example. This
association was established on June 18, 2008 with the leadership of Tmusk and

203
participation from Business Design Laboratory (BDL), ZMP, and Vstone.
179
It aims
to cooperate in marketing activities and exchanging technologies. Yoichi Takamoto,
the president of Tmsuk, criticizes the government’s robotics policy for only giving
out subsidies to big enterprises and famous universities in developing higher robotics
technologies which can not be commercialized soon.
180
Unlike large corporations,
SMEs tend to develop easy-commercializable robots for faster R&D costs recovery,
which are not in the government’s policy target. In light of such circumstances, the
association decided to seek for partnerships with Korean developers, and with the
Korean government’s full support and grant.
181
Moreover, Takamoto took Honda
and Toyota never participated in government projects and Mitsubishi’s passiveness
in selling its Wakamaru, for examples, to point out that even big enterprise are
reluctant to participate in some risky government projects or are half-hearty in
cultivating non-industrial robotics market.

179
Tmsuk develops robots ranging from large-scale disaster rescue robots to home surveillance
robots. BDL develops and sells robots that communicate with humans at homes and medical
institutes. Vstone is in the field for two-legged robot that plays soccer. ZMP is in the development of
a music player robot and other creations. As the applications are diverse at each company, the four
companies do not conflict one another and can cooperate in many R&D areas. In terms of technology
exchange, Tmsuk is considering to license its robotic remote-control technology to the other three
companies for better utilization of the technology. The association aims to expand Japan’s home-use
robot market to more than ten times in five years from the current market of 30,000 units.

180
From my June 18, 2008, interview with Mr. Yoichi Takamoto (President of Tmsuk).

181
Mr. Takamoto explained that the association decided to cooperate with Korea after “the bill to spur
development and marketing of intelligent robots” passed in Korea in February 2008. This law
addresses the establishment of an investment company targeting robotics manufacturers and a public
procurement system to request public organizations to purchase domestic robots. It clearly indicates
Korea’s national attitude toward establishing a robotics industry. In light of such circumstances in
Japan, the association is seeking for partnerships with Korea. Tmsuk already exchanged a
memorandum (letter of intent for investment) with the Korean government on 2008 April 21, under an
agreement where the Korean government will grant its full support if Tmsuk enters the Korean
market.

204
And the last, the common platform strategy has advanced further. It has
standardized most major robot developers’ specifications for an enhanced division of
labor and a newly established supply chain of domestic robotics industry. This
allows the robot makers to exchange and share information, lower R&D cost, and
achieve higher efficiency. It also enables the makers to develop innovative and
flexible robotics applications. At the same time, it functions as a corner stone of the
government’s domination in Japan’s next-generation robotics industry. Moreover, it
acts as Japan’s first step to pursue international standardization of robotics industry
for early domination of the larger global market. From my April 25, 2006 interview
with Mr. Hiroshi Tsuchiya (Deputy Director in Industrial Machinery Division of
METI), he stressed that the government’s attempt to unify domestic robotic
specifications has two major purposes. First, the industry can smoothly spin-on
robotic technologies to other industries. Second, the industry can further dominate
the global market based on Japan’s large market share of the world’s industrial robot.
And in his words, “it might take longer for the market to achieve that.”
Although the common platform offers lots of advantages, however, it raises
questions regarding the mechanisms and timing to unify different specifications of a
given industry. It is often the market competition and mechanisms that produce
unified specifications for industries (the IT industry for example). In Japan, it is the
government acting as a industry leader to promote specification unification of its
robotics industry in order to correct the embedded problems from the weak military
market structure. This strategy reflects Japanese market failure mentality and the

205
demand of the government leadership in dominating the market. In addition, METI’s
industrial policy reflects an assumption of a clear development trajectory of robotics
industry and prediction toward near future from the bureaucrats’ linear plan rational,
which is highly unreliable.
Moreover, this strategy has great risks. For instance, early specification
unification kills creativity of scientists and engineers and prolongs their learning
cycle. This is especially true for the non-industrial robot sector as it is still in infant
stage and needs to advance for diverse technological breakthroughs. As such, a
unified specification is a big minus. Second, any given important technological
breakthroughs using different specifications will make this multi-billion common
platform effort be in vain. It will end up wasting public and private resources and
time. Most importantly, the entire Japan’s robotics industry might lose the chance to
dominate global market, just like the case of its IT industry. Moreover, Japan is
leveraging this common platform to push hard for international standardization of
robotics industry in order to dominate the large global market at current stage.
182

However, if Japan continues being absent in current international competition of

182
NEDO’s Research Project on International Standardization of RT Middleware (2005-current).
According to NEDO’s 2007 report entitled “Trends in Robotics and Government’s View for
Standardization,” the project is led by Professor Mizukawa and Dr. Kotoku. The project aims to
realize an open and modularized robot system and has started to send specialists to OMG technical
meetings. Following the strictly defined OMG standardization process, the project team released a
“Request for Proposal” on the standard specification at the technical meeting held during September
2005 in Atlanta. In addition, AIST and the U.S. software vendor Real-Time Innovations, Inc. together
submitted primary proposals for the standard specification at the Boston technical meeting in June
2006. This proposal was modified after a technical review and adopted as a standard specification at
the technical meeting at Anaheim, California in September 2006.

206
military robotics, Japan’s robotics industry might repeat the fate of its aircraft
industry, receiving specifications rather than giving.

3.5 DIVERSIFY APPLICATION OF ROBOTICS TECHNOLOGY
In addition to the efforts in promoting tri-use robotics technology, Japanese
government also has been trying to redirect and diversify its robotics development by
applying these tri-use technologies to various applications (especially to extreme
environment and military potential purposes) through 17 major public-funded
programs with numerous projects led by 14 ministries and government agencies
(Table 3-18).
This section attempts to pinpoint the government’s current projects in
simulating artificial military markets by providing civilian applications and public
procurements in such as agricultural, medical, disaster prevention and rescue,
oceanic research, humanitarian demining, and surveillance and observation purposes.
These six projects also aim to diversify Japan’s robotics development and
applications toward extreme environment and high military potential: the HAL
project, the Portable UAV project, the Kenaf Rescue Robot project, the Comet
Humanitarian Demining Robot project, the RMAX UAV project, and the Urashima
UUV project (Table 3-19). In addition, with technology transfer from AIST, TRDI
has been applying these civilian robotics technologies in its Future Unmanned
Defense System, Advanced Soldier Combat System (ASCS) and Unmanned Air and
Naval Combat Systems (UANCS).

207
Table 3-18: Diversification Development of Japan’s Next-Generation Robotics

Ministry/
Agency
Program/R&D Outline
METI/AIST
/NEDO
- HRP Project
- 21
st
Century Robot Challenge
Program
- Core robot technologies
- Modularized robot parts
- Common software platform
- Commercialization
- Government-Industry-Academia collaboration
METI/MEXT
/JST
- Humanitarian Demining
Robots
- Sensor technology
MEXT - Brain-type Computer Project - Sensor technology,
- Control technology
MEXT/
JAMSTEC
- Urashima Project - Sensor technology
- Autonomous UUV technology
- Deep sea position technology
- Close-cycle fuel cell technology
MEXT/IRS - Rescue Robot Projects - Sensor technology
- Control technology
- Material technology
- Search for victims in fallen buildings and underground
FDMA - Fire-fighting Robot
- Disaster prevention Robot
- Automatic running-type analyzer at the time of NBC
MAFF/JUAV - Next-generation Agricultural
Machines
- UAV
- Automatic agricultural machine that process the work that
requires big burden to men
- Autonomous UAV technology
MLIT - Remote Operation Robot
- Underwater robot
- Autonomous UGV technology
- Autonomous UUV technology
- Long-range remote operation system
MHLW - Operation Robots &
Equipments
- Remote operation system under guidance of image
MIC - Network Robot & Human
Interface
- Combination of ubiquitous network technology and robot
technology
MOD/TRDI - Future Unmanned Defense
System
- Advanced Soldier Combat
System (ASCS)
- Unmanned Air and Naval
Combat Systems (UANCS)
- Autonomous UAV technology
- Autonomous UUV technology
- Autonomous USV technology
- Autonomous UGV technology
JAXA - JAXA Vision 2025

- Space robots to work in space station, building telescopes
and prospecting and mining for minerals;
- NEC is building experimental “robot satellites” that will
be able to service, repair and refuel other satellites;
- Toshiba include a highly dexterous, 9.7 meter robot arm

Source: Adapted from METI, MEXT, AIST, NEDO, and MSTC.

208
Table 3-19: Six Example Robots of Diversification Development

Organization Robot Robot Type Civilian Applications Military Applications
METI/NEDO HAL -3, 4, &
5 robot suit
Wearable
exoskeleton
- Medical & welfare;
- Entertainment;
- Extreme environment
Power Assist Equipment
of ASCS
METI/NEDO/
TRDI/Kawada
Kawada
Portable UAV
Fixed-wing
UAV
- Surveillance &
observation;
- Extreme environment
Unmanned combat air
vehicle (UCAV) of
UANCS
MAFF/JUAV/
Yamaha/
(METI)
Yamaha
RMAX G1
Rotary-wing
UAV
- Agricultural;
- Geographical;
- Observation;
- Extreme environment
Flying Forward
Observation System
(FFOS) of UANCS
METI/NEDO/
IRS/(MEXT)
Kenaf Caterpillar
UGV
- Disaster rescue;
- Extreme environment
TRDI portable robot of
ASCS
MEXT/JST/
(METI)
Comet-1, 2, &
3
Multi-legged
UGV
- Demining;
- Extreme environment
Military demining
machine
MEXT/
JAMSTEC
Urashima UUV - Oceanic research;
- Geographical;
- Extreme environment
Robotic Submarine of
UANCS

These examples can best illustrate how the Japanese government has been
simulating artificial military markets by providing civilian grounds to develop
military robotics technologies in order to counter the structural constraints from its
weak military market structure. Moreover, these six cases also represent six
mainstream military robotics applications, respectively, in advanced soldier combat
system, fixed-wing UAV, rotary-wing UAV, caterpillar UGV, multi-legged UGV,
and autonomous UUV, which TRDI is currently developing under its Medium- to
Long-Term Defense Technology program from 2005 to 2009. On the other hand,
AIST is acting as a R&D and technology hub organization to participate and promote
R&D activities of these projects and pass the R&D results to TRDI for military
applications. This allows TRDI to integrate robotics technologies smoothly into its

209
mid- to long-term defense strategy such as the future unmanned defense system,
ASCS and UANCS project (Figure 3-17).
These projects have some characteristics in common. First is the “leader in
catch up” phenomenon. Although Japan’s robotics technology is considered as leader
position in the world, however, in these specific applications, Japan again, is playing
catch up with the West by government policies and public money. Second is the
“dual-use” phenomenon. The technologies and robots developed from these projects
have high military potential (or military ready) and can be used for military purposes
without heavy modification. The same or similar robots and technologies are mostly
applied in military applications and operations in the U.S. and other countries. And
the last is the “overshoot” phenomenon. These projects are originally developed for
civilian purposes such as agricultural and oceanic research. Moreover, they have
been developed more than just for civilian uses in terms of technological capabilities.
Yamaha’s RMAX unmanned helicopter, for example, was originally designed and
developed for agricultural and observation purposes, however it is also considered by
many military experts as one of the most sophistic autonomous UAVs in the world
and a deadly weapon system for military operation at any time. IRS’ Kenaf rescue
robot is another example. Its mobility is even better than the Talon military UGV
deployed by the U.S. Army in actual battlefields around the world.
I will first introduce the development background for civilian purposes of
these projects and then focus on the robots and technologies to demonstrate how they
can be used in military applications or are currently used in military operations in

210
Japan or other countries. In addition, I will also show TRDI’s efforts to integrate and
apply these advanced robotics technologies in different military projects of its future
unmanned defense system.

Figure 3-17: Japan’s Overall Organization Scheme in Diversifying Development of
Robotics Technology and Transferring to Military Application

PM
MOD METI MEXT MAFF
TRDI AIST
NEDO/MSTC
IRS JST
JAMSTEC
JUAV
CSTP

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3.5.1 MOD/TRDI: Future Unmanned Defense System
TRDI’s 2007 Medium- to Long-Term Defense Technology Outlook report is
the military version of robotics R&D roadmap from METI. This 45-page report
emphasizes two main points. First, it highlights the formulation of TRDI system for
better and faster utilization of commercial off-the-shelf (COTS) technologies from
public research organizations (mainly AIST), universities and private firms.
183

Second, it stresses the importance of robotics technology to Japan’s current and
future defense technology. It shows that robotics technology dominates six out of
seven important military capabilities Japan should have for the future weapon
system: defense against ballistic and cruise missiles; defense against guerrillas and
special operation forces; counter terrorism; defense against cyber attacks; counter
armed special operation vessels; defense against aggression on offshore island; and
international peace cooperation. According to the report, in terms of developing
Japan’s future unmanned defense system, TRDI includes four main platforms
(advanced soldier combat system, UGV, UAV, as well as UUV robots and
unmanned vehicles) and eight kinds of core robotics vehicle technologies in military
applications: multiple vehicles autonomous-operation coordination technology;

183
In utilizing COTS technologies, TRDI has played an active role in maintaining and developing
defense-related technologies through adopting civilian R&D results from public research
organizations, universities, and private enterprises. TRDI conducts reviews and formulates
technological map to decide which technological areas it should focus on by determining the trends of
new defense technology and advanced COTS technology. TRDI’s COTS system is currently
undergoing reorganization with an aim to shorten the period of R&D, reduce life-cycle costs, and
introduce higher-performance equipment by actively adopting advanced COTS technology. In
addition to utilize advanced COTS technologies, TRDI is promoting technology/information
exchanges and joint R&D projects with domestic organizations to enhance technological potential,
reduce national expenditure, and shorten research periods.

212
Precise Navigation Technology (Geographical features collation technology);
Detonation engine; high-efficiency electricity generation and storage technologies;
Constant temp and pressure stiffening FRP (Fiber Reinforce Plastic); Ultra-high
altitude flight structure technology; artificial muscle technology; and others) (Figure
3-18).

Figure 3-18: Japan’s Future Unmanned Defense System

Source: TRDI, 2008

First, in terms of UAV technology, TRDI aims to develop various types of
UAV such as a portable type for collecting information and a mid-scale type to carry
out individual tasks such as intelligence and combat in order to cope with diverse

213
situations including new threats. TRDI expects that a UAV that can fly for a long
time and operate autonomously in the air for intelligence in countering ballistic and
cruise missiles and offshore island invasions can be overcome in about 5 years, a
UAV that can operate autonomously in the air and has combat capacity for precision
attack, in about 10 years, and a small, portable UAV of the 60 cm class for
reconnaissance and monitoring operations to counter guerrillas and special forces
and to counter terrorism, in about 15 years. Second, TRDI aims to realize a network
operational UGV robot system that consists of two or more robots with various
functions in order to cope with diverse situations such as attacks by terrorists,
guerrillas and special forces within 5-10 years. And the last for UUV technology,
TRDI hopes to complete a future robotic submarine within 10 years, that can operate
autonomously in water, sense its surrounding environment, discern targets, make
judgments, communicate, attack, and perform other functions by means of sensors
and dramatically improve its capabilities by networking with various platforms
containing other UUVs to safely and effectively monitor the infiltration of guerrillas
and special forces in harbors and coasts (Table 3-20).
In addition, TRDI’s 2007 and 2008 Defense Technology Symposiums in
Tokyo offered further insights into the direction and progress of TRDI’s efforts in
applying most recent advanced robotics technologies to the challenges of defense.
184

184
From my November 11-12, 2008, field research and interviews with several TRDI officials in
TRDI’s 2008 Defense Technology Symposiums in Tokyo.

214
There were five main themes of 2007 symposium: 1) portable robot, 2) UAV, 3)
mid-size UAV, 4) advanced solider system, 5) the ATD-X jet fighter.

Table 3-20: Japan’s Future Weapon System Technologies

Source: TRDI, 2007

215
There were also four main themes of 2008 symposium: 1) simulation related
technologies, 2) stand-off biological agent detection system, 3) power assist
equipment, and 4) unmanned technology. In addition, it is the first time in Japan for
private firms and universities to participate in TRDI’s symposium starting from
2007. Moreover, in November 2008 symposium, there was an additional and
exceptional “Research Exchange Booth” to demonstrate TRDI’s (mainly its
Advanced Technology Center) efforts to include and integrate R&D results from
public research organizations (mainly AIST) and universities into flexible military
applications.

3.5.2 METI/NEDO: Hybrid Assistive Limb (HAL) Robot Suit
The HAL Power-Assisted Robot Suit or exoskeleton (the HAL-3, -4, and -5
models) project was developed by a research team headed by Professor Yoshiyuki
Sankai in Tsukuba University since 1999. From 1999 to 2005, the total R&D cost of
HAL project is around 1,000 million JPY with financial support from Tsukuba
University and NEDO, as one of 65 prototype robot development projects of
NEDO’s Project for the Practical Application of Next-Generation Robots (2004-05)
in the 21
st
Century Robot Challenge Program.
185
The main purpose of the HAL robot
suit project is for medical rehabilitation treatment to assist patients and disabilities.
The HAL-3 first debuted in 2005 Aichi EXPO and HAL-4 and -5 debuted in 2006.

185
The Sankai Laboratory also participated in the phase II of METI’s HRP project in Personal Care
Service Field.

216
Among the three models, the HAL-3 is for legs assistance only and the HAL-4 and -
5 are designed for whole body support (Figure 3-19). The HAL-3 weights 22kg (user
can not feel the weight since the power of robot suit loads the weight) and comes
with a backpack containing a computer, wireless network equipments and batteries,
four actuators, and many built-in sensors in the suit. The HAL-4 weights only 17kg
and does not have a backpack as it minimizes the computer, network equipments,
and batteries into the waist belt. The HAL-5 is similar to HAL-4 and has even
smaller actuators to better fit user’s hip and knees. However, they all work under
similar structure and mechanisms by providing extra power assistance legs and arms
based on neuromuscular signals (myoelectricity) when user tightens the suit to the
body.

Figure 3-19: HAL-4 & 5 Robot Suit

Source: Cyberdyne Inc.

217
There are two main systems of this suit: the bio-cybernic system and muscle
adaption system. The bio-cybernic system utilizes built-in bio-electric sensors to
monitor and detect the electric current from human brain to muscle, and transmit the
detected signals to the control computer. The computer then transfers the signals into
digital signals to power the actuators in hips and knees to provide extra support to
human body for different motions. This signal transmitting process (from sensors to
computer and then to actuators) of the hydraulically operated robot suit is faster than
human body (from brain to muscle) and can boost strength by more than 50 percent.
The suit enables disabilities or immobile patients to walk at 4km/h, climb stairs or
seat themselves without a chair with almost no physical exertion. In addition, the
muscle adaption system memorizes user’s habit and tendency of using muscles and
automatically adapts to it for powering the actuators. This allows the interaction
between user and the suit becoming more natural and smoother.
At present, with the support from AIST INCS, the HAL robot suit has been
commercialized by a new joint venture, the Cyberdyne Inc., involving Tsukuba
University, INRI Inc. (Intelligence Nano-tech Research Institute from Mitsui Co.
Ltd.) and Ota City Industrial Promotion Organization. The joint venture was
established in June 2005 with initial capital of 10 million JPY and has already
received more than 100 orders at around 1.5 to 2 million JPY each individual version
suit. Individual version suit is tailor-make for each individual user to best fit his or
her special needs, requirements and physical conditions. There is also a corporate
version available mainly design for hospital use and with much more expensive price

218
tag around 10 to 20 million JPY per suit for it has to meet much stricter requirement
to satisfy different users’ needs and physical conditions.
Professor Sankai explains that this suit can be used not only in medical
purposes but also for disaster rescue and athletes training.
186
He further explains, we
can program Hideki Matsui senshuu’s (baseball player) batting pose and muscles
movements in the robot suit and allow other baseball players to experience by
wearing the robot suit. When asked about military potential of this suit, he was
extremely passive and upset by answering “this suit was designed to help and reduce
disabilities but not to produce more for the world.” In addition, he also proved that
the Pentagon has asked him several times to assist developing American army’s
current military robot suit but he refused. When asked about if AIST will pass his
R&D results to assist TRDI in developing military robot suit, he refused to answer
further questions. Although Professor Sankai refused to answer possible military
utilization of his research results, the HAL robot suit is clearly of interest to two
large and wealthy groups of people, namely, the aging population and the military.
Coincidentally, with the technical support from AIST, TRDI has been
developing its Power Assist Equipment for its Advanced Soldier Combat System
(ASCS) from 2007.
187
This project, seems to me, is to develop the military version of
Professor Sankai’s HAL robot suit in taking advantages of such technology for
soldiers in real combat environment. According to the 2007 Mid- to Long-Term

186
From my July 06, 2007, interview with Professor Sankai in Tsukuba University.

187
TRDI’s 2007 Mid- to Long-Term Defense Technology Outlook Report.

219
Defense Technology Outlook report, TRDI considers the robot suit technology as
one of Japan’s top 20 most needed military technologies for future weapon system
(Table 3-20). And TRDI plans to spend 5 to 10 years to develop this robot suit and
related technology with technological support from AIST.
188

TRDI’s Power Assist Equipment involves three main technologies R&D
activities (Table 3-21, Figure 3-20 & 3-21). First is the motion detection system
using sensing and computing system to detect and translate neuromuscular signals
(myoelectricity) from human brain transmitting to nerve and muscle system into
digital computing process. Second is the muscle enhancement structure and
mechanisms for strengthening human motions and physical abilities. And third is the
motion coordination control system to coordinate the interaction between human
motions and the equipment. Moreover, in the Defense Technology Symposium 2008,
TRDI demonstrated the concept of its Power Assist Equipment as one of the four
main themes of the symposium.
189
TRDI’s Power Assist Equipment is also a
wearable suit and aims to enhance solders’ physical ability such as muscle strength,
increase in tasks of load enhancements, activity range and time period, and walking
and running speed.

188
Ibid.

189
From my November 11-12, 2008, field research in TRDI’s Defense Technology Symposium 2008.

220
Table 3-21: TRDI’s Power Assist Equipment Related Technologies

Technology Functions
Motion Detection Human motion detection principles for wearable robot
Muscle Enhance Structure Mechanisms to strengthen human motions and physical abilities
Motion Coordination Control Mechanisms to coordinate human motions and equipments

Source: TRDI, 2008

Figure 3-20: TRDI Power Assist Equipment for Leg Support

Source: TRDI, 2008

221
Figure 3-21: TRDI Power Assist Equipment for Entire Body Support

Source: TRDI, 2008

In fact, the military robot suit is becoming a trend for future warfare in many
countries. For instance, the U.S. DARPA is funding a $50 million project known as
Exoskeletons for Human Performance Augmentation to develop similar robot suit
and turn it into a military reality for delivering the advantages of such technology to
soldiers in real combat environments. The scope of the program includes the
development of actively controlled exoskeletons that not only increase strength and
speed, but also provide a higher level of protection from enemy fire or chemical
attack. It also aims to allow soldiers to stay active longer, carry more food,
ammunition, larger weapons and field supplies, and bring injured soldiers back to

222
base by themselves. Systems will range from un-powered mechanical devices that
assist a particular aspect of human function to fully-mechanized exoskeletons using
chemical or hydrocarbon fuels for totally independent operation by soldiers in the
field.
There are currently several exoskeleton projects underway with support from
DARPA. The best example is SARCOS’ Wearable Energetically Autonomous
Robots (WEAR) developed jointly with the U.S. Army (Figure 3-22). The WEAR is
designed for on-foot combat and includes a base unit configured like legs, torso and
arms that mimic human movement using complex kinematic systems and contain
energy storage, power systems, and actuators.
190
In addition, there is also an
Application-Specific Packages (APS) providing additional protection against specific
threats like radiation and biological agents or give expanded functionality for
communications, surveillance or night operations. Another example is also a
DARPA associated project, the Millenium Jet’s Solo Trek XFV (Exoskeletor Flying
Vehicle) adding flight feature to the exoskeleton. This flying exoskeleton delivers
exceptional 3D transportation for individuals in combat situations. The VTOL
(Vertical Takeoff and Landing) Solo Trek has a range of 200Kms, a cruising speed
of 70 knots and is able to hover still at any altitude up to a max of 8000 meters.

190
The problems of actuation, power supply and energy storage have been tackled by the M-DOT
Aerospace. It is developing the Mesoscopic Turboalternator (META) engine which would act as a
viable electric power source for human exoskeletons. The Quoin International has developed a unique
power supply and actuation system for anthropomorphic exoskeletons by using hydrocarbon fuels and
high-pressure pneumatic systems to mimic human movement.

223
Figure 3-22: The U.S. SARCOS WEAR Robot Suit

Source: SARCOS

3.5.3 METI/NEDO/TRDI: Kawada’s Portable UAV
This portable UAV for short-distance search-scout and
observation/surveillance on surrounding environment purposes is developed by
Kawada and with technological support from Hitachi and AIST, financial support
from NEDO, and research participation from TRDI (Figure 3-23). There are three
different size models of this portable UAV, 60, 90, and 150cm. The figure shown
below is the 60cm model prototype with only 400g and an overall wing span of
60cm. It is powered by electronic propeller and equipped with lithium polymer
battery to prolong flight time and range.

224
It is equipped with a designed flight computer utilizing GPS, speed sensors,
and other actual aircraft sensing technologies to achieve autonomous flight or pre-
programmed (semi-autonomous) flight tasks. It also can be remote controlled by
ground station with designed software to transmit data and command. Its body
material is ultra-lightweight for portable purpose and safety consideration. The take
off and landing methods are hand-launch and can be landed on any assigned spot
with GPS position from ground station without any additional equipment or facility.
This UAV carries a color camera and an infrared-rays camera capable of taking 3
pictures per second to carry out its observation and surveillance assignments.

Figure 3-23: 60cm Version of Kawada Portable UAV

Source: Kawada Industries.

225
Since the late 1990s, UAV technology has been a hot R&D topic in the
Japanese defense community. As a preliminary step, TRDI has, since 2003, launched
the UAV Technology Demonstrator Program in conducting the basic R&D on
materials and components in preparations for possible domestic production of
military UAVs, with a budget about 2.2 billion JPY.
191
As the government policy
puts the domestic production issue as top priority for whatever military equipment is
being proposed. Therefore, TRDI has initiated six indigenous UAV projects in its
Future Unmanned Defense System by incorporating various civilian UAV
technologies through AIST. These projects includes: 1) a high-altitude stationary
UAV, 2) a multi-purpose small-sized UAV, 3) a medium-scale UAV, 4) the
Unmanned Aircraft Research System, 5) a short-range UAV patrol system, and 6) a
compact-range Flying Forward Observation System (FFOS) UAV (Figure 3-18, 3-24
& 3-25).
192

191
TRDI 2007 Future Unmanned Defense System Progress Report.

192
Ibid.

226
Figure 3-24: TRDI Version of Kawada’s Portable UAV

Source: TRDI, 2007

227
Figure 3-25: Preprogram Semi-autonomous Flight for TRDI Portable UAV System

Source: TRDI, 2008

In addition, Japan Defense Agency (JDA) noted in its 2005 Defense White
Paper stressing the growing importance of UAVs in military operations. This white
paper cited the advantages of deploying UAVs for intelligence gathering, operations
in harsh environments, and emergency tasks. In the same year, JDA decided to
include UAV as part of its missile defense system and to introduce the new
Unmanned Combat Air System (UCAS) project (2005-2009) in applying unmanned
and robotics technologies for JASDF, as part of the Mid-Term Defense Program
from 2005-2009. And from 2006, TRDI began to conduct assessment surveys on the
operations of military UAVs in the U.S. and other countries as preparation to
introduce military UAVs in Japan (Figure 3-26). Thus, Japan is following the U.S.,

228
Europe, Russia and China in developing unmanned combat platforms for future
warfare.

Figure 3-26: Current Status and Future Perspectives of Japan’s Self-Defense
Aircrafts

Source: TRDI, 2008

In the 2008 Defense Technology Symposium, TRDI released some
information, photos, and models of its multi-purpose small-sized UAV (the Kawada
portable UAV) and the medium-scale UAV (jet powered) from its UAV Technology

229
Demonstrator Program started in 2003.
193
According to TRDI officials, TRDI has
completed a prototype of the mid-scale jet powered UAV in early 2008 and will
commence trial fights in 2009 (Figure 3-27).
194
Although, this medium-scale UAV is
intended to serve as a technology demonstrator, but TRDI officials conceded that it
may also be used for high-speed surveillance, a target drone or a decoy.
195
This UAV
has a overall length of 5.2 meters and a wingspan of 2.5 meters. It is powered by a
U.S. made small turbojet from Teledyne Company, and is designed to be carried by
the F-15 fighter for air launch. In addition, the nose-mounted optics package
indicates that this mid-scale UAV will be used for weapon targeting.

Figure 3-27: TRDI’s Mid-scale UAV Carried by F-15 fighter

Source: TRDI, 2008

193
From my 2008 field research and interviews with several TRDI officials in TRDI’s Defense
Technology Symposium 2008.

194
Ibid.

195
Ibid.

230
3.5.4 METI/MAFF/JUAV: Yamaha RMAX UAV
As an efficient labor saving technique for Japan’s shrinking farming
population, Japan’s unmanned helicopters (or rotary-wing UAV) were initially
developed for agricultural pest control under the government’s support and projects.
It then has gradually developed for other fields such as forestry, volcanic activity
observation, nature disasters observation and information collection, geographic
purpose, and geological features investigation. For instance, Yamaha’s R-50 UAV is
the result of government and industry’s first attempt and initiative in utilizing UAV
for agricultural pest control. Yamaha's development of utility-use unmanned
helicopters began with a request from Japan Agricultural Aviation Association
(JAAA) in 1983 for crop dusting that could help reduce labor and costs in Japan's
labor-strapped rice farming industry. After extensive R&D efforts, Yamaha
completed its first UAV, the R-50 (powered by a liquid-cooled, 2-stroke, 98cc, 12 hp
engine), in 1987 and it was the world's first unmanned helicopter for crop dusting
with a 20 kg payload. This unmanned helicopter was soon adopted by most
agricultural schools in Japan from 1988 and has largely replaced high-cost labor and
manned full-scale helicopters. As such, Yamaha Motor began a full-scale
development strategy by establishing a new business division for R&D, marketing,
and service in 1989. In addition, MAFF passed guidelines for the use of R-50 for
crop dusting of rice paddies in 1991. This initial deployment was capable of covering
approximately 6,000 hectare of farmland, according to Nosuikyo (a trade association
affiliated with MAFF).

231
Meanwhile, with seven years R&D works (1990-1997), Yamaha introduced
its advanced RMAX unmanned helicopter which is powered by a liquid-cooled 2-
stroke, 246cc, horizontally-opposed twin-cylinder engine rated at 21 horsepower and
equipped with the famous Yamaha Altitude Control System (YACS).
196
The RMAX
has dramatic improvements in functionality and operability over the R-50. For
instance, it succeeded, for the first time in the world, in taking aerial photographs of
the volcano disaster area by flying beyond the visual range of the operators in
observations of the volcanic activity at Mt. Usu in Hokkaido in April 2000. In 2003,
Yamaha released the RMAX Type IIG (G stands for Global Positioning System,
GPS) combines the same high payload and attitude stability with a new GPS-based
speed control function for easier operation.
197
The autonomous version RMAX
allows operator to control and monitor by four cameras at once while the helicopter
goes by the pre-programmed flight plan from the control computer. Thus, it can be
used for an enormous range of applications such as aerial photography, perimeter
control and coast watch, at only 10 percent of operation costs of manned helicopter.

196
In 1995, Yamaha introduced the Yamaha Altitude Control System (YACS) which is characterized
by its vastly improved ability to allow helicopter hovering stationary position. This technology uses
an optical fiber gyro and an accelerometer to control the helicopter’s attitude and altitude. YACS has
significantly improved helicopter operability and make operation accessible to people without special
skills and training. As such, it can lower the operation costs.

197
The base-model RMAX (for agriculture) costs $86,000 per unit. It is equipped with a single GPS
and can only fly five meters above the ground within sight. The aerial photography version can fly up
to 100 meters and costs between $150,000 and US$230,000 per unit. The flight research model for
universities, with only manual flight mode, costs $120,000. And the fully autonomous version of
RMAX includes the ground station, antennas, computers, monitors, two complete autonomous
airframes, and a four camera system, costs $1 million.

232
Moreover, in October 2005, Yamaha introduced the most advanced version
of RMAX, the RMAX G1 (Figure 3-28). G1 is capable of programmed flight beyond
the operator’s visual range, for survey and observation purposes. It is equipped with
YACS and Real Time Kinematic Differential GPS (TRK-DGPS) system which uses
GPS sensor and Giro sensor to enables precise position control within one meter in
pre-programed out-of-sight flight plan. Other equipments, such as CCD camera,
infrared-rays camera, observation still camera, video camera, measure purpose laser
equipments, allow the ground station to supervise and record simultaneously. In
addition, G1 is easy to operate from ground station by joystick to remote 3D real-
time. The operator can simply setup flight coordinates on the data map and the
vehicle will autonomously move toward it. When unexpected situation happens such
as the radio wave reception difficulty, the helicopter will autonomously return to the
launch position.
According to Nosuikyo, as of March 2005, the total farming area under
unmanned helicopter-operated crop dusting had expanded to 663,000 hectares, with
the number of registered helicopters at 2005 units and the number of operators at
10,719 (Table 3-22, 3-23 & 3-24). Labor saving efficiency has contributed to the
growth of Japan’s unmanned helicopters market, both covering area and the number
of operators, which have shown 10-20 percent annual growth in recent years.

233
Figure 3-28: Yamaha RMAX G1 UAV

Source: Yamaha, 2007

Table 3-22: Total Area of Unmanned Helicopter-operated Dust Cropping (in
thousand hectare)

1998 1999 2000 2001 2002 2003 2004 2005
Total 189 226 279 344 398 452 563 663

Source: Nousuikyo and Yamaha, 2006

Table 3-23: Number of Registered Unmanned Helicopters (in units)

1998 1999 2000 2001 2002 2003 2004 2005
Total 992 1,151 1,284 1,418 1,565 1,687 1,905 2,005
Yamaha 844 973 1,067 1,121 1,202 1,281 1,402 n/a

Source: Nousuikyo and Yamaha, 2006

234
Table 3-24: Number of Operators for Unmanned Helicopters (in persons)

1998 1999 2000 2001 2002 2003 2004 2005
Total 5,037 5,881 6,690 7,182 7,886 8,661 9,574 10,719
Yamaha 4244 4843 5375 5832 6327 6881 7516 n/a

Source: Nousuikyo and Yamaha, 2006

MAFF and JAAA under its auspices have taken charge of setting standards
and regulations governing the use of unmanned helicopters for agricultural
applications including pilot training, qualification and aircraft registration. However,
for the past two decades, remarkable technological advancements have enabled fully
autonomous flights for UAVs beyond operators’ visual range and taken them out of
the traditional realm for pesticide spraying, but for variety of other applications such
as observation of volcanoes and typhoons and military operations.
Therefore, in 2002, upon receiving METI’s instruction and guidance to unify
the specifications and standards of UAV and also to diversify applications in other
purposes and industries, the four major domestic makers (Yamaha Motor, FHI,
Kawada, and Yanmar) started the Industrial Unmanned Helicopter Consortium and
in 2004 and completed the safety guidelines for UAVs in commercial purposes. On
September 1, 2004, they further established the Japan UAV Association (JUAV)
with support from METI, MAFF, JAAA, and the Society of Japan Aerospace
Companies (SJAC). JUAV has 14 regular corporate members and several supporting

235
members (AIST especially) from universities and research agencies as of 2009.
198

According to the JUAV Founding Prospectus (formulated on June 30, 2004), the
main goals of JUAV are to ensure the safety of UAV, standardize specifications,
promote UAV markets, direct R&D activities for social needs “under the
government’s guidance”, diversify applications of UAV technologies, and to comply
with the government’s regulations while developing UAV technologies (including
export control).
Currently, Japan is the world leader in this unmanned helicopter industry and
no other country in the world that UAV is used on such a wide scale in civilian
purposes.
199
There are six major models from the four major manufacturers and only
available in the “domestic market.”
200
And more than 2,000 unmanned industrial l
helicopters are deployed in Japan, primarily in the agricultural sector, with Yamaha
dominating 70 to 75 percent of the domestic market. According to JUAV’s 2006
Survey report, most Yamaha’s unmanned helicopters are supplied to government

198
According to JUAV, there are 14 regular corporate members as of 2009 January: Fuji Heavy
Industries Ltd., Yamaha Motor Co., Ltd., Yanmar Agricultural Equipment Co., Ltd., Kawasaki Heavy
Industries, Ltd., Mitsubishi Heavy Industries, Ltd., Sky Remote Co., Ltd., Hirobo Limited, Mitsubishi
Electric Co., Ltd., Hitachi Co., Ltd., NEC Corporation, GH Craft Ltd., Fuji Imvac Inc., NIPPI
Corporation, Xenocross Co., Ltd., X-Treme Composite Japan LLC. And 6 supporting members:
AIST, Kyushu University Graduate School of Engineering, ArkTrust Co. Ltd., IRS, Japan Aerospace
Exploration Agency (JAXA), Crossbow Technology Inc.

199
Visiongain. 2008. The UAV Market Report: Forecasts and Analysis 2008-2018.

200
According to JUAV’s 2006 Survey Report on the Current Status of Japan’s UAV, there are six
main models currently available in the domestic market: the R-50, RMX, RMX-II G (Yamaha), YH-
300, AYH-3 (Yanmar) and RPH-2 (FHI). These models are equipped with water-cooled, two cycle
engines with displacement of 98cc (R-50), 246cc (RMAX, RMAX-II G, AYH-3), 248cc (YH-300)
and 679cc (RPH-2) and can carry loads of 10 liters (R-50), 24 liters (RMAX, RMAX-IIG, YH-300,
AYH-3) and 60 liters (RPH-2) of agricultural chemicals.

236
organizations engaging in land surveys and disaster prevention, and research
organizations. Moreover, Yamaha’s UAV is subject to the Foreign Exchange and
Foreign Trade Control Law, which restricts exports of products with high military
potential. METI also prohibits the export of UAV which can be programmed to fly
autonomously or beyond an operator’s visual range or is capable of carrying 20 liters
or more liquid.
In fact, what really makes UAV deadly is its ability to fly with pinpointed
accuracy GPS system, which can be used to hit targets distance away without being
detected by radar, according to several military exports’ opinions. Yamaha’s RMAX
G1, for example, is equipped with a high-precision GPS unit and can fly close to the
ground at about 12 miles per hour. "Nothing but an incredible stroke of luck could
stop it if it suddenly appeared in the sky above the White House," and “we are
observing an increasing threat from such things as remote-controlled aircraft used as
small flying bombs against soft targets,” said Michel Gauthier, the head of Canadian
secret services, at the 2004 Homeland Defence and Land Force Conference in
Calgary.
201

Another example to demonstrate the military potential of Japan’s UAV
technology is the 2005 Yamaha scandal for attempting to export its RMAX
unmanned helicopter to China. According to February 24
th
, 2007, Asahi Shinbun,

201
According to March 28, 2004, Washington Post, the conference was organized by the Center for
Military and Strategic Studies of the University of Calgary, the Canadian Defence and Foreign Affairs
Institute, and the Land Force Reserves Restructure Project Management Office of the Canadian Army
during March 25-27. It was participated by several senior military officers, academics, and
government officials from Canada, the U.S., the U.K., and Australia.

237
three Yamaha Motor’s employees, including Kazuo Uchiyama, head of Yamaha
Motor's aeronautics department, were arrested on February 23, 2007, in violation of
the export control law. They attempted to export the RMAX UAV to China’s BVE
Technology Co., a company with close ties to China's People’s Liberation Army
(PLA), without METI’s permission. METI believes that Yamaha’s RMAX could be
converted to military purposes, such as carrying weapons of mass destruction. In
March 2007, a summary court fined Yamaha Motor 1 million JPY for violating the
country's foreign exchange and foreign trade law.
Yamaha’s outstanding capability in UAV technology and the RMAX as the
world’s finest commercial UAV have great potential for very large order from both
military and non-military internationally. This scandal signals that although the
government has been actively creating artificial military markets to provide market
incentives for domestic makers, however, they are too small and weak in comparison
with the large global market. Since the late 1980s, TRDI has collaborated with FHI
and other makers to develop Japan’s first Flying Forward Observation System
(FFOS) UAV by incorporating indigenous UAV technologies (Figure 3-26 & Figure
3-29).
202
This FFOS UAV finished the trial flight in 1997 and was deployed in 2004
and 2005 by the Japanese Ground Self-Defense Force (GSDF) troops in active
combat zones in Iraq.
203
In my May 07, 2008, interview with Mr. Yasuhiro
Hashimoto (Chief Research Scientist in Robot Technology Promotion Department of

202
TRDI 2008 Report of Current Status and Future Perspectives of Japan’s Self-Defense Aircrafts.

203
Yomiuri Shinbun, August 11, 2005.

238
MSTC), he told that the GSDF’s FFOS UAV was remodeled from FHI’s RPH-1 & -
2 UAVs, which were commercially available for the use of spraying agricultural
chemicals.
Nevertheless, in comparison to the large global market, the profit incentives
of Japan’s limited domestic procurements are just not enough. With the
government’s continuous export control, the 2005 Yamaha scandal will not be a
single case. METI will have to face increasing challenge and pressure from the
industry in demanding larger military markets for their further growth and
development.

Figure 3-29: Japan’s Flying Forward Observation System (FFOS)

Source: TRDI, 2007

239
3.5.5 METI/NEDO/IRS: Kenaf Rescue Robot
After the experience of the 1995 Great Hanshin earthquake, advanced
disaster response system, robotics system in particular, against natural and man-
made disasters is recognized as a necessary social infrastructure by the Japanese
government. Currently, there are four government agencies, METI, MEXT, NEDO,
and Fire and Disaster Management Agency (FDMA), have been formulating and
implementing various public projects in applying robotics technology for disaster
prevention, response, and rescue purposes. They have assigned the International
Rescue system Institute (IRS) as the core organization to conduct rescue related
technologies R&D and develop various advanced rescue robot systems for
observation, information collection, searching, as well as disaster prevention and
rescue (Table 3-25). IRS is a joint research organization with participation from 25
universities and several pubic and private research institutes (Figure 3-30). It aims to
advance and diffuse robotics technology such as sensing technology and human
interfaces in disaster response system.

240
Table 3-25: Four Major Government Rescue Robotics Projects Assigned to IRS

Agency Project Outline
MEXT Special Project for
Earthquake Disaster
Mitigation in Urban Area,
2002-2007
- Development of Advanced Robots and Information
Systems for Disaster Response
- establish a basis of science and technologies for
earthquake disaster-prevention measures
METI/
NEDO
Project for Strategic
Development of Advanced
Robotics Elemental
Technologies, 2006-2011
- RT System to Travel Within Disaster-Affected
Buildings
- develop advanced robot system and elemental
technology
METI Emerging Regional
Consortium for Research
and Development, 2006-
2008
- Ubiquitous System for Disaster Prevention and
Security by RT Applied Meshed Network Sensors
- carry out advanced research and development for
practical use under the regional consortium
FDMA Technology for Fire-
Fighting and Disaster-
Prevention Research
Advanced System, 2006-
2009
- Development of Method of Fast-Track Searching and
Locating the Survivors under the Wreckage
- Development for Advanced Hydraulically or
Pneumatically Driven Tools for Search

Figure 3-30: Participants of IRS

Source: IRS

241
Out of the government initiatives, IRS has organized 47 R&D projects with
more than 100 academic researchers’ participation. These projects have produced
various ground and aerial robotic vehicles, sensors, and communications equipments
for emergency responders and rescue operations in urban areas.
204
There are mainly
three prototype robots. The first type is the searching robot for entering disaster
location, searching for victims, and collecting information. The second prototype is
the human-assist robot to replace human to work in disaster locations such as for
moving and carrying tasks. And the last type is the communication robot to collect
information on disaster location, building’s condition and information, and to transit
information back to the command center. As of the end of 2006, there are total 50
rescue robots developed under IRS’ R&D projects, which will be commercialized by
2011 (Appendix D). In addition, with government funding, IRS has organized a five-
year nationwide program (2006-2011) aiming to integrate an advanced and efficient
robotic response and rescue system and will test the prototype robots in the
experiment fields in Kobe and Kawasaki city.
Within the program, the Kenaf rescue robot is the best example to illustrate
Japan’s current effort in developing civilian UGV which at the same time has high
military potential. The Kenaf robot is developed by IRS’ Tadokoro laboratory for
NEDO’s RT System to Travel within Disaster-affected Building project.
205
This

204
Focus NEDO, No. 32, 2009.

205
NEDO’s project of RT System to Travel within Disaster-affected Buildings is one of the six
missions that the government specified in the Project for Strategic Development of Advanced

242
rescue robot weights 20kgs and is a high-mobility tracked and wheeled robot with
central crawler and four flipper arms to operate in unprepared surface (Figure 3-31 &
3-32). It is capable of climbing steps and traverse 70 degree slopes of rubble. This
prototype robot is the combination of Japan’s current most advanced rescue robotics
technology in many aspects such as compact size and lightweight, autonomous
human-avoidance technology, autonomous extreme-environment mobility
technology, remote and autonomous AI human-interface, 700-meter
telecommunication remote operation with multiple images transmitting technology,
multiple units cooperative operation, and 3D map detection-construction navigation,
and the Geographic Information System (GIS) mapping technology.
This robot was developed for the purposes of collecting information,
supporting rescue, and first responder to rescue assignments in large scale disaster
location. It has been tested in many actual environment locations such as the Kobe
subway system and the Disaster City in the U.S. to prove its mobility and
effectiveness. In the 2007 RoboCup Atlanta, the Kenaf robot beat iRobot’s Packbot
and Foster-Miller/Qinetiq North America’s Talon military robot through an obstacle
course and won the championship for its outstanding mobility. In addition, it was
also invited by the U.S. Army Research Laboratory, Delhi Fire Service in India,
Japan’s Fire Department and Self Defense Force, and many international
organizations for demonstration. Currently, Tadokoro Laboratory is developing

Robotics Elemental Technologies (2006-2011), which is also part of METI’s 21
st
Century Robot
Challenge Program.

243
better sensors and other related technologies to improve the robot’s performance,
which is scheduled to be commercialized by 2011 to join actual disaster rescue
assignments.

Figure 3-31: The Kenaf Rescue Robot

Source: IRS

244
Figure 3-32: Ground Station of Kenaf Robot

Source: IRS

The simulated military markets (here is to develop military capable robots in
the name of rescue purpose) created by the government’s industrial policy have
provided Japan’s public, private, and academic R&D institutions with a promising
ground in developing military-capable robots in the name of civilian purposes. In my
2008 interview with Professor Tadokoro Satoshi, President of IRS, when asked about
the military potential of the Kenaf rescue robot, he replied that the Kenaf robot is in
fact far better and advanced than most military UGVs or robots in terms of mobility

245
technology, AI human interface, autonomous avoidance technology, navigation and
mapping technology, and telecommunication remote operation.
206
It is able to carry
out more complicated tasks. He further said, “Rescuing is a much more complicated
and difficult task than simply aiming and killing,” and “Japan is trying very hard to
be a superpower in the rescue world to earn respect from the world,” just like, “the
U.S. is the world cop but Japan aims to become the fireman for the world.”
207
When
asked about if AIST will transfer IRS’ R&D results such as the Kenaf robot to TRDI
for military purposes, he stressed that IRS only devotes itself to the rescue world and
it is AIST’s job to act as a technology hub. His job is to utilize all possible resources
and technology to develop the most practical rescue robots. When asked about if the
Kenaf or other IRS robots are under METI’s arms export control, he said that it
should be, as those robots are consisted of Japan’s most advanced robotics
technology with very high military potential. Professor Tadokora’s opinions directly
proved the military sensitivity and potential of the rescue robots that the government
is vigorously promoting.
Similarly, TRDI is developing a portable robot for its Advanced Soldier
Combat System with technological support from AIST. It aims to integrate UGV

206
In my November 28, 2008, interview with Professor Tadokoro Satoshi after his speech on the
flexible application of rescue robot in the International Next-Generation Robot Fair, ICRT Japan 2008
in Osaka.

207
Ibid.

246
mobility technology from current rescue robots including the Kenaf robot.
208
The
key technological challenges of TRDI’s portable robot are such as the modular
mechanisms of mobility/manipulation and control system. Therefore, with the
technological support form AIST, TRDI’s number-4 research institute manufactured
the first prototype in 2004 and is advancing into various applications and
improvements in core technologies such as mobility, remote control system, and
operation system for applying in actual military operations. As one of five main
themes for the 2007 Defense Technology Symposium, TRDI, for the first time,
demonstrated this portable robot in actual operations such as against guerrilla and
special force in order to minimize the damage to military personnel (Figure 3-33). In
recognition of the effectiveness of a small-sized and lightweight robot for defense
and rescue purpose, this portable robot is designed to be carried by military
personnel. It is very lightweight (22kgs and 34kgs with the operation arm), very
compact in size (67/48/12cm), and can be assembled and dis-assembled in just a few
minutes. This portable robot can run at a top speed of 10km/h, climb 45 degree sloop
and stair, and is equipped with a camera located in the arm allowing the operator to
monitor. It is also a tele-operated robot and has a capability to carry out various
missions such as reconnaissance inside/around a building, detection/disposal of
explosive devices (Figure 3-34).

208
According to the brochure of TRDI’s 2007 Defense Technology Symposium.

247
Figure 3-33: TRDI Portable Robot Prototype

Source: TRDI, 2007

Figure 3-34: Remote control system of TRDI Portable Robot

Source: TRDI, 2007

248
3.5.6 METI/MEXT/JST: Humanitarian Demining Comet Robot
According to U.N. 2006 survey, there are currently more than 100 million
anti-personnel mines (AP mines) underground all over the world. These mines not
only disturb the economic development of mine-buried nations, but also injure or kill
more than 2,000 people per month. However, the two most common demining
methods, manual demining and mechanical equipment demining, are too costly,
dangerous and time-consuming. Under this ultimate environment, robotics and other
related technologies in making demining operation safer and more efficient have
received high expectations from international community. In addition, R&D projects
of applying robotics technologies in humanitarian demining and information
exchange have been progressing under cooperation and collaboration of military,
industry, and academia in Europe, Canada, and the U.S. since the 1990s.
209

Japan has started to prepare humanitarian demining R&D from March 1997,
when the Tokyo Conference on Anti-Personnel Landmines was held. This
conference introduced the research status of the U.S. and France, and undertook a
comprehensive discussion to strengthen international efforts in developing new
technologies in solving the problems of AP mines and landmine clearance. In
December 1997, Keizo Obuchi, Japan’s former Minister of Foreign Affairs signed

209
There were several international conventions for information exchange on humanitarian demining
such as the 1998 IEEE Workshop "Robotics for Humanitarian De-Mining" in Leuven, Belgium and
the 1998 IARP Workshop on "Robotics for Humanitarian Demining" in Toulouse, France.

249
the Ottawa Convention, and proposed zero victims as the ultimate policy goal.
210
In
1998, under the financial support from METI and MEXT, Science Council of Japan
(SCJ)’s Committee for Humanitarian Anti-Mine and Removal Technology was
established and led by Professor Katsuhisa Furuta of Tokyo Institute of
Technology.
211
On the other hand, in cooperating with the SCJ, both Robotics
Society of Japan (RSJ) and Japan Society of Mechanical Engineers (JSME) set up
professional R&D committees in examining robotics technologies for searching and
demining in 1999 with participation and collaboration from corporations,
universities, and national laboratories: the Humanitarian Mine-Removal Robotics
Research Committee in RSJ, and the Use of Advanced Measuring Technology and
Walking Robot in Mine Searching and Processing Research Committee in JSME.
TRDI has also conducted researches for anti-caterpillar mine search and removal
technology and produced some demining systems such as Type 89 mine search
machinery and several demining vehicles that are already practically in operation.

210
The 1997 Convention on the Prohibition of the Use, Stockpiling, Production and Transfer of Anti-
Personnel Mines and on Their Destruction was opened for signature in Ottawa, Canada. Thus, it is
commonly known as the Ottawa Convention.

211
MEXT financially supported ten universities and two industries in a research program to develop a
sensor for mine detection, as well as access and control technology for detecting and clearing mines
using a robot with multiple legs mounted with a sensor and a remote control machine. The financial
subsidies for 2002 and 2003 were about 400 million JPY. METI is providing funds to cover part of
the expenses for six industries for research projects on Integrated Mine Detectors, Mine Detection
Vehicles and Demining machines. On December 12, 2003, the official field tests of newly developed
equipments were publicly held in cooperation with the Japan Defense Agency in Aomori prefecture.
In April 2004, the Ministry of Foreign Affairs assisted field tests of some of the equipments in a mine-
affected country. According to NEDO, the financial subsidies for 2002, 2003 and 2004 was about 700
million JPY. These R&D activities by MEXT, METI, MOFA and JDA were coordinated by the
Cabinet Office.

250
However, these projects details are still maintained as military secrets and are not
open to public.
Moreover, in 2002, MEXT set up the Committee of Experts on Humanitarian
Demining Technology emphasizing the importance of tackling technological
development of AP landmine detection using advanced Japanese technology.
212
This
committee examined various approaches to promote R&D in this field. And on May
27
th
, 2002, the committee concluded and presented the Promoting R&D for
Humanitarian Demining report.
213
The report suggested that the R&D based on
Japanese advanced robotics technology should be carried out for supporting safety
and effective activities of humanitarian demining in mine affected countries. Japan
should cooperate internationally to contribute to the assistance of such countries by
developing such technologies “in compliance with the control of weapons” and on
the cooperation of the ministries concerned. In addition, the suggested
implementation body, Japan Science and Technology Agency (JST), should include
comprehensive activities from basic R&D of prototype projects, and integrate the
research potential of private companies, public research institutes, and universities.
Based on the report’s recommendation and sector designation, JST takes
charges of the actual humanitarian demining R&D planning and activities including

212
The committee includes Professor Furuta Katsuhisa (Tokyo Denki University), Asama Jajime
(Director of RIKEN), Okamoto Yukio (President of Okamoto Associates), Shibata Takanori (Senior
Researcher of AIST), Professor Nonami Kenzo (Chiba University), Professor Hirose Shigeo (Tokyo
Institute of Technology), and Professor Fukuda Toshio (Nagoya University).

213
The 2002 report is entitled “Promoting R&D for Humanitarian Demining Technology.”

251
setting up research areas, inviting research proposals, and conducting R&D
activities. Out of 82 proposals, JST has selected 12 projects and integrated into its
Autonomous Detection and Demining Robotics System (ADDRS). The ADDRS
program includes, for example, Professor Shimoi Nobuhiro’s (Tokyo National
College of Technology) Research of Walking Robot in Searching and Processing
Mine Technology, Professor Hirose Shigeo’s (Tokyo Institute of Technology)
Research of Anti-Person Mine Removal, Research of Proactive Probe, Research of
Tools Equipped on Mine-Removal Walking Robot, and Professor Nonami Kenzo
and Shimoi Nobuhiro’s co-research (Chiba University) on the Development of
Autonomous Six-legged Walking Robot, the Comet-I (Figure 3-35).

Figure 3-35: JST’s Autonomous Detection and Demining Robotics System

Source: JST

252
JST’s ADDRS is currently in collaboration with the U.S. Army and aims to
develop an autonomous mine detection robot, a full autonomous radio-controlled
small mine detection helicopter, and several mechanical clearance robots and
vehicles that can work simultaneously through networking. The mine detection robot
and the helicopter take charge of recognizing safety area and dangerous area,
marking and mapping all mines and Unexploded Ordnance (UXO). And the
unmanned mechanical clearance robots and vehicles will dispose only AP mines and
avoid anti-tank mines and UXOs. In addition, all data and information is wirelessly
sent to the control center via an artificial satellite with real-time two-way
communication.
Among the 12 projects, Professor Kenzo Nonami’s Comet robot has received
high international attention and recognition for its effectiveness in mine detection as
well as the advanced autonomous six-legged robotics technology. The first
prototype, the Comet-I, has a metal detector and an optical proximity sensor on each
foot for mine detection and preventing the robot from stepping on a mine. It features
compliance control to protect the robot’s legs from shocks. However, this protection
algorithm makes Comet-I walk slowly at 20 meter per hour with precise detection
mode. The more advanced Comet-II robot has six three-joint legs with 3 DOF, each
consisting of a shoulder, a thigh to ensure more walking stability on rough ground. It
uses gasoline power generator for long time outdoor operation and uses an external
power supply for indoor operation. Moreover, the Comet-II has two additional mine-
detection manipulators attached at the front, one with a mixed sensor with metal

253
detector and GPR (ground penetrating radar) to detect AP and anti-tank mines, and
the other with a grass cutter. Moreover, in order to achieve a desired motion and
autonomous locomotion, the Comet-II uses the central hierarchical neural network
(HNN) controller, high-level motional control, and external recognition with a tele-
operated external host computer. When the mixed sensor at the manipulator detects a
mine and a UXO, the GPS based mapping will mark automatically with 1cm
precision. Thus, the Comet-II has a faster speed of 150 meters per hour with
detection mode, ten times faster than the Comet-I, and can perform 300 square
meters per hour mine detection area.
The Comet-III is the latest full autonomous mine detection robot and is
scaled up from the Comet-II. It has 2 crawlers under the main body and 6 legs with
two hydraulic power arms in the front (Figure 3-36). The two arms are with the
mixed array mine detector at the right and the marker at the left. The robot weights
900kgs and has specifications of 4m in length, 2.5m in width, and 0.8m in height. It
is made of composite material for legs and manipulators like Carbon Fiber
Reinforced Plastic (CFRP) to reduce the total weight. The Comet-III has a 650cc
gasoline engine and a 40 litter gasoline tank, which enable it to continuously work
for 6 hours. The walking speeds by legs and running mode of crawlers are about
600m and 3km per hour, respectively. With this walking speed, the mine detection
performance becomes 1,800 square meters per hour. The robot is able to climb up
the slope with 30 degrees using crawlers and legs. The Comet-III has a hierarchy
supervisory control system and a multi-task cooperative control system, which is

254
applied by the SH4 computer systems. The computer system can communicate with
the host computer system simultaneously. This robot is waterproof and can work for
both day and night time.

Figure 3-36: The Comet-3 Autonomous Demining Robot

Source: JST

3.5.7 MEXT/JAMSTEC: Urashima UUV
Ocean research and development is one of CSTP’s eight priority areas in
Japan’s Third Basic S&T Plan. Japan’s long-term ocean policy was set out by the

255
CSTP’s subdivision on ocean development within MEXT in August 2002.
214
Six
ministries are involved in ocean related research and development, with MEXT
having a coordination role across ministries. MEXT is also responsible for Japan’s
largest marine research institute, Japan Agency for Marine Earth Science and
Technology (JAMSTEC).
At present, JAMSTEC has developed some of the most advanced marine
technology and sophisticated deep ocean vehicles in the world.
215
Among all the
projects supported by MEXT and carried out by JAMSTEC, the Urashima UUV
project is the best example to demonstrate the high dual-use characteristic of Japan’s
robotics technology (Figure 3-37). JAMSTEC’s Urashima project (since 1998) for
ocean science and exploration is a part of the Advance Marine Technology Research
Program executed by its Marine Technology Center (MTC)’s Autonomous
Underwater Vehicle Technology Group (AUVT).
Conventional deep ocean exploration vehicle is connected to a support ship
via a cable, therefore, has a limited movement and activity areas. This puts
limitations on the extent to explore the vast and three dimensional oceans along with
some difficult and hazard occasions such as ice-sealed oceans and underwater
volcano where support ships can not reach. These limitations have given rise to the

214
According to CSTP’s Third Basic S&T Plan for Environment, Infrastructure and Frontiers, Japan’s
21
st
century ocean policy has three research goals: 1) applying new knowledge to ocean conservation
and use of marine resources; 2) elucidating the mechanisms of global warming and climate change;
and 3) contributing to the expansion of the intellectual assets of mankind.

215
According to JAMSTEC, it holds world depth records for manned and remote-operated
submersibles. Its manned submersible, the Shinkai, can operate at a depth of 6,500 meters and the
remote-operated submersible, the Kaiko, has a maximum operational depth of 7,000 meters.

256
need for UUV that can perform autonomous observational cruises without a support
cable, however still with technological challenges such as power device and high
accuracy navigation system.

Figure 3-37: JAMSTEC’s Urashima UUV

Source: JAMSTEC

The Urashima UUV is a large class autonomous deep ocean exploration
vessel and robot equipped with high technology computers, new navigation systems,
a variety of observation instruments, and the closed-cycle fuel cell power supply
(with a energy efficiency of 54 percent, the highest efficiency in the world) for
operations mainly in detailed ocean floor mapping and sub-ocean floor profiling. On

257
December 3
rd
, 2000, Urashima achieved the world's first success in transmitting
color images from an underwater camera to the support vessel on the surface using
ultrasound in Suruga Bay. In the same year, Urashima also successfully submerged
past the 1,000m mark to a depth of 1,753m. In 2006, JAMSTEC conducted a total of
18 sea trials on launch and recovery, and underwater performance using optical fiber
and acoustic communication with the support vessel.
In addition, as GPS’s radio waves cannot propagate well underwater,
therefore JAMSTEC has developed a new navigation system to allow Urashima to
determine its own location and follow predefined courses. This unique navigation
system combines the strengths of inertial navigation systems (INS) which measure
inertial motion of the body with high precise ring laser gyros and motion sensors in
tri-axes for time to time. In addition, it calculates moved distance based on the
Newton's law of motion, and acoustic navigation which calculates distance based on
round travel time of acoustic signals between the UUV and acoustic transponder
deployed at known location (Figure 3-38).
For the problem of underwater power supply, JAMSTEC has developed the
closed-cycle fuel cell system for providing high performance power for Urashima
(Figure 3-39). The conventional fuel cell systems use hydrogen stored in a fuel tank
and oxygen extracted from the air, and then expel the water produced back into the
air. However, this technology can not be applied in UUV since it is very difficult to
extract oxygen from ocean water. Furthermore, expelling byproduct water back into
the high-pressure underwater environment would require enormous amounts of

258
energy, which might imbalance the vehicle. As such, this closed-cycle fuel cell
system uses a tank of oxygen and the byproduct water is therefore stored onboard in
a pressure resistant container without emitting anything into the external
environment.

Figure 3-38: Urashima UUV’s Navigation System

Source: JAMSTEC

259
Figure 3-39: Structure of Closed-Cycle Fuel Cell of Urashima UUV

Source: JAMSTEC

Both the navigation system and the fuel cell applied in Urashima UUV are
significantly more advanced than that found in conventional GPS and fuel cells used
on land or in the atmosphere. In addition, these two important technological
breakthroughs are indispensable for deep and long-distance ocean operations and at
the same time make military robotic submarine possible. Currently, Urashima is
capable of diving to a maximum depth of 3,500m and a world-record continuous
cruising distance of 317kms (Table 3-26). And as of 2009, JAMSTEC is planning to
perform cruises beneath the ice in the Arctic Ocean, which requires the capabilities
to dive to the depth of 6,000m and to cruise continuously over the distance of
5,000km. The Urashima UUV project has provided the fundamental structure design
along with various technological breakthroughs to make full-autonomous UUV
possible for more diverse applications including a military robotic submarine.

260
Table 3-26: Brief History of Urashima UUV

Date Event
1998 April Development of the deep-sea cruising Urashima UUV began with the aim of
commencing operations in 2005.
2000 Dec Succeeded in the acoustic transmission of color images taken by the onboard
camera at a depth of 1,753m in Suruga Bay off Japan.
2001 Aug Achieved the new world record for AUV 3,518m depth and tested the acoustic
noise reduced propulsion system TV images through acoustic telemetry at this
depth.
2003 Jun Achieved the world-first, continuous 220km cruise using a fuel cell.
2005 Feb Achieved a new world record distance for cruising vehicles of 317km.
2006 Jun Succeeded in gathering evidence of submarine landslides and recording detailed
seafloor typography of the eastern coast of Off Izu Peninsula.
2006 Jul Detailed bathymetric survey of mud volcanoes in the Kumano Trough –
Contributing to research into large-scale earthquakes in ocean trenches as well as
methane hydrate resource
2006 Dec Award for Excellence, The Robot Award 2006 for extreme environment
application

Source: JAMSTEC, 2007

On May 14
th
, 2007, Japan’s Maritime Self-Defense Force (JMSDF) has
successfully deployed several small remote-control naval minesweepers S-7.
216

TRDI is advancing for promoting the S-7’s performance by making it more
autonomous for autopilot, identify targets, self-judge and attack in order to make a
further progress for a military version Urashima UUV or robotic submarine as a part
of Japan’s Future Unmanned Defense System and UANCS for the missions of search
and rescue, naval mine sweeping, underwater investigation, supervise island and
coast, and for special force operations. This project will take 6 years (2007-2013)

216
Yomiuri Shinbun, May 16, 2007.

261
and 6 billion JPY to develop. According to TRDI, the current technological
challenges are underwater communication technology, autopilot technology, and
power supply. TRDI expects to overcome these technological problems with support
from AIST and aims to go on first test before 2012 and will send it to JMSDF for
actual military operations by 2013.
217

The six projects clearly demonstrate the government’s industrial policy in
simulating artificial military market incentives to diversify its robotics development.
In addition, with AIST functioning as the technological hub in integrating and
transferring these civilian robotics technologies, TRDI is able to absorb and apply
Japan’s most advanced robotics technologies faster and cheaper in military
applications. However, when other countries have been vigorously developing
military robots with the ambition to dominate the global market, Japan is almost
absent in this dynamic new game. It is, again, playing catch up in these military
applications despite its leading technological capabilities in robotics. Japan’s
simulated military markets are too small to provide sufficient market incentives to
match the domestic makers’ needs. The 2005 Yamaha scandal is not just a single
case but an answer to this indirect simulated military market strategy and the
outdated arms export control.

217
On March 7, 2008, JAMSTEC and AIST concluded a comprehensive cooperation agreement to
conduct collaborative R&D projects (including Urashima UUV project) and studies on each other’s
research fields through information exchange, sharing research facilities and equipment, and
personnel exchange in integrating different fields on marine research.

262
On May 24, 2009, Nikkei Shinbun reported that the Japanese government has
decided to relax its self-imposed ban on arms export to “enable shipments to
countries with which Japan co-develops arms,” in order to promote more joint
development and production of key weapon systems. This decision directly proves
the weak military market structure theory, It implies that the government aims to
incorporate the global market to provide massive market incentives to stimulate its of
military-related industries, including the robotics industry. With this major step,
Japanese robot makers will soon transfer their technological strengths, along with the
well-known mass production capability, into various advanced weapon systems to
compete with their American and European counterparts for the large global market.
Moreover, with halfway lift, the regulatory power of economic bureaucrats will, in
fact, increase. They will still dominate the policy process in deciding and controlling
which weapon systems should be promoted, developed and exported. In turn, it will
also complicate the politics of economic, industrial, and military planning.

3.6 CONCLUSION
While most countries have been vigorously developing robotics technology
for future warfare and overall national power as a mainstream and fiercely
competing for the larger global market, Japan is almost absent in this dynamic new
game. Japan’s postwar weak military structure has affected its robotics industry to
concentrate on industrial applications, which resulted in two main weaknesses: weak
military/extreme environment applications and basic R&D. That, in turn, has invited

263
and legitimated government’s industrial policy in simulating artificial markets to
redirect and diversify Japan’s robotics industry toward next-generation tri-use
robotics technology and military applications, in countering the structural
constraints.
The major findings from Japan’s robotics industry shed some possible
implications to the post-bubble Japanese economy. First, Japanese industrial policy
is responsive and corrective in nature rather than active or proactive as
conventionally suggested. It is a responsive governmental instrument to counter the
structural constraints and problems resulted from Japan’s postwar weak military
market structure. Thus, industrial policy reflects the market failure mentality of both
public and private elites.
Second, the government still has a big role in Japan’s economic and industrial
development as long as this weak military structure remains and keeps inviting
government’s interventions. The industry still demands the government’s leadership
and coordination function to correct the embedded problems. Although the 1990s
reforms have aimed to shift the Japanese economy toward the liberal market model,
it requires more government policies to achieve the proposed goals. It also demands
more government roles in transforming the entire industrial structure. Thus, the scale
of government’s industrial policy planning is becoming larger, incorporating more
actors, and requiring more public resources. This, in turn, is increasing government’s
role in economy rather than decreasing.

264
Third, METI still dominates the industrial policy process and tends to team
up with major private and academic players in promoting certain strategic industries,
although with participation from other government agencies. On surface, CSTP acts
the commander for Japan’s overall S&T policy, which implies more political
participation and influence to industrial policy process. However, my findings
suggest that the role of the new CSTP is in fact more coordinating-oriented
(especially in coordinating the cooperation between METI and MEXT) than
directing or commanding Japan’s S&T and industrial promotion. In reality, METI is
still the actual industrial planner since the CSTP does not posses expertise and
detailed information in formulating industrial policy. As a result, CSTP can only
give out vague visions based on the information provided by METI and MEXT. In
addition, although there are more players such as MAFF and MEXT participating in
industrial policy making, however, the actual executors are the newly-restructured
hub organizations such as AIST, NEDO, and MSTC under METI’s jurisdiction,
supervision, or funding affiliation.
Moreover, Japan’s industrial policy still reflects a strong assumption of a
clear development trajectory and prediction toward near future from the economic
bureaucrats’ linear plan rational. It also emphasizes cooperation rather than
competition although with some decorative liberal market elements. Therefore, in the
worst scenario, Japan’s robotics industry might repeat the fate of its IT industry,
losing the chance to dominate the global market. In addition, the government’s
artificial markets are too small to provide sufficient market incentives, therefore in

265
the worst scenario, Japan’s robotics industry might repeat the fate of its aircraft
industry, receiving specifications rather than giving.
And the government will have to deal with increasing pressure and
challenges to its ban on arms exports. Recent news reported that Japan is going to
relax its arms export control and allow its military technology (including robotics
technology) to export to “certain” countries. However, the halfway lift, again,
reflects the government’s domination in balancing economic and industrial
development, national security and other considerations, in order to maximize the
well being of Japan as a whole. Thus, the economic bureaucrats will still dominate
the entire policy process with censorship and other control regulations.
In short, for the very existence of its weak military market structure and the
elites’ market failure mentality, Japan simply can not converge to the U.S. liberal
market model or to any others. Japan still has a different capitalism with different
development path and strategy on its way to rich nation and strong army.

266
CHAPTER 4: JAPAN’S POSTWAR AIRCRAFT INDUSTRY

4.1 INTRODUCTION
The 1950s Korean War had given Japan the initial opportunity to rebuild its
aircraft industry by repair and maintenance contracts and licensed production from
the U.S.
218
Active government policy and private engagement along with the U.S.’
generous technology transfer had soon upgraded modern aircraft manufacturing
capabilities for major Japanese firms. It had restored and consolidated the industrial
base, and put Japan’s aircraft industry back on track for further development.
219

Despite the strong desire to rebuild and develop its aircraft industry, Japan
did not aim to become a major military power as the U.S. expected. It had attempted
to build a self-sufficient aircraft industry without relying on the market incentives of
a healthy military market structure. Thus, the weak military market structure has
invited and legitimized the state’s industrial policy in simulating artificial markets.
These artificial markets included such as creating external technology sources
through promoting licensed production and joint development projects, and
providing profit incentives, economy of scale, R&D direction, and trial and error
learning experience by public-funded indigenous projects.

218
SJAC 2008 annual Aerospace Industry in Japan report.

219
Ibid.

267
In early 1990s, with decade-long active government promotion and private
engagement, Japan has become the most reliable 2
nd
and 3
rd
tier suppliers in the
global aviation industry. It was expected to be on the fast track toward a strong
aircraft industry with many comparative advantages.
220
Experts believed the
Japanese government had a strategy to manage the embedded problems from the
weak military market structure in creating an independent aircraft industry.
However, the development for the past two decades has yielded different
assessments on Japan’s aircraft industry today.
221
The interplay of the government’s
early industrial policy along with other external factors (U.S. government and
Boeing’s control growth strategy) on Japan’s two major market imperfections
(insignificant domestic civil aircraft market; self-imposed weak military market
structure) has produced major problems of Japan’s aircraft industry.
In addition, the repeated failures of major indigenous projects, the expensive
and inefficient military aircraft sector, and piecemeal commercial aircraft works,
have raised questions and casted strong doubts toward the government’s long-term
industrial policy and its weak military market arrangements. Moreover, the shift of
U.S. policy in technology transfer, military deployment, and Asian policy in the
post-cold war era have forced Japan to adopt new strategy toward more independent

220
Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the Technological
Transformation of Japan. Ithaca: Cornell University Press; Moses Abramovitz. Catching Up, Forging
Ahead, and Falling Behind, Journal of Economic History. 1986. 46(2): 385-406; Soren Eriksson.
1995. Global Shift in the Aircraft Industry: A Study of Airframe Manufacturing, with Special
Reference to the Asian NIEs. Goteborg University; Richard Aboulafia. Japan’s Military Aircraft
Slump, Aerospace America, August 2006.

221
Ibid.

268
defense policy and an indigenous aircraft industry. On the other hand, the
international collaboration project (ICP) has opened the door for Japan to leverage its
comparative advantages as a decisive third party and gain opportunities to improve
its technological level for the indigenous goal.
222

Japan’s current strategy in developing its aircraft industry has raised
questions regarding the logics of its industrial policy in the post-bubble era. I will
provide my theory and answers in this chapter. This chapter concentrates on the
development of Japan’s aircraft industry (postwar to current). It acts as an example
to prove my market failure mentality theory. I trace the early development of Japan’s
aircraft industry back to 1950s and illustrate how this self-imposed weak military
market structure has affected the development of its aircraft industry into current
characteristics. In addition, I introduce the Japanese government’s current industrial
policy in reviving its aircraft industry and analyze it with my theory to demonstrate
how the government has been simulating artificial markets in redirecting and
diversifying its aircraft industry to counter structural constraints. Moreover, I
conclude my main findings from this case study and highlight possible implications
to Japan’s political economy in the post-bubble era at the end of this chapter.

222
Kimura Seishi. 2007. The Challenges of Late Industrialization: The Global Economy and the
Japanese Commercial Aircraft Industry. New York: Palgrave Macmillan.

269
4.2 THE POSTWAR DEVELOPMENT FROM 1950s TO 1990s

4.2.1 Contract Maintenance/Repair and Licensed Production
Under the postwar allied occupation’s demilitarization policy, Japan’s aircraft
R&D and production were entirely prohibited. After seven-year (1945-1952)
prohibition of aircraft activity, Japan had started to re-develop its aircraft industry
with national policy initiatives on military, civilian aircraft, and space
development.
223
And the first programs undertook were the contracts in repair and
maintenance of the U.S. military aircrafts based in Japan and Asia from 1952. These
repair and maintenance contracts provided Japan’s major domestic manufacturers
such as Fuji Heavy Industries (FHI), Mitsubishi Heavy Industries (MHI), Kawasaki
Heavy Industries (KHI), and Ishikawajima-Harima Heavy Industries (IHI) with the
best opportunities to rapidly rebuild and advance their aircraft engineering skills and
capabilities from the postwar seven years blank.
224

With the outbreak of Korean War in 1950, the U.S. government decided to
reverse its postwar course toward Japan.
225
It enthusiastically supported Japan to
rebuild its defense and aircraft industry for sharing more military burden of Asia. It
allowed Japanese aircraft makers to licensed produce U.S. military aircrafts, which

223
SJAC 2008 annual Aerospace Industry in Japan report.

224
Ibid.

225
Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the Technological
Transformation of Japan. Ithaca: Cornell University Press.

270
also fell into Japanese government’s hope for wanting its aircraft industry to take off.
Under this circumstance, Japanese government started to initiate several direct and
indirect measures to promote the development of its aircraft industry. In 1954, the
Japanese government established Japan Self-Defense Agency (JDA) and Self-
Defense Force (SDF) for creating domestic market demands for military aircrafts.
Thus, the Japanese private manufacturers began to arm SDF with slight modification
of U.S. military aircrafts and equipments for domestic use in early stage. In the same
year, the Diet enacted the 1954 Aircraft Manufacturing Enterprises Law. This law
authorized MITI to coordinate entrepreneurial activities in aircraft production and
control new entry into the industry in order to maintain a stable and suitable scale of
production for major aircraft makers.
226
In addition, MITI further exempted the
aircraft industry from Japan’s anti-monopoly laws in order to promote industry-wide
collaboration.
227
These two measures set the legal groundwork for MITI’s industrial
policy in transforming the industrial structure for Japan’s aircraft industry.
Furthermore, during the period, several government institutions were also
established to help MITI coordinating work with individual firms and planning the
aircraft industry’s development. For example, the Aircraft and Ordinance Division
was established to carry out planning and formulating development strategy for
Japan’s aircraft industry under the Machinery and Information Industries Bureau (in

226
Orit Frenkel. 1984. Flying High: A case study of Japanese industrial policy, Journal of Policy
Analysis and Management, Vol. 3, No. 3. (Spring, 1984), pp. 406-420.

227
Ibid.

271
charge of developing strategy for promoting “knowledge-intensive” industries) of
MITI. In terms of promoting aircraft R&D activities, the government established the
National Aerospace Laboratory in 1963 and the Institute of Space and Aeronautical
Science in 1964 to take over national level aircraft and aerospace technology R&D
projects and promote private participation and investment.
On the other hand, there were also various consultative bodies linking the
private sector to these official establishments.
228
The Aircraft and Machinery
Industry Council with its Aircraft Industry Committee was responsible for the
periodic development of long-range visions and direction in which Japan’s industry
should develop. It was also the most active advisory council in developing and
coordinating national aerospace policy. Moreover, the Industrial Technology Council
also included a aerospace industry sub-council to provide MITI with policy
recommendations on aircraft technology R&D activities. In addition, the Society of
Japanese Aerospace Companies (SJAC) was founded in 1952 as a private forum for
aircraft makers to better capitalize on the reopening of Japan’s aircraft industry and
at the same time as the sole public entity representing the interests of the industry.
SJAC was active in developing industry positions and works closely with MITI in
developing and executing national aerospace policy.
As the active engagement and promotion from both public and private sector,
Japan’s aircraft manufacturers began to vigorously licensed produce U.S. military

228
Ibid.

272
aircrafts starting from KHI to licensed produce Bell’s Bell 47 helicopter in 1953 and
FHI to produce the Beech Aircraft’s T-34 trainer for Japan Air Self-Defense Force
(JASDF) in 1954 (Table 4-1). MHI and KHI were also appointed prime contractors
for the F-86J jet fighter and T-33A jet trainer in 1955 with North American and
Lockheed respectively (Figure 4-1). In this period, Japanese manufacturers
aggressively sought to absorb modern technologies. And the U.S. licensors also
generously transferred production technologies, process designs, product
specifications, planning information, production tooling and tool design, and the
statistical quality control techniques. According to SJAC, Japan’s defense industry
had received about $10 billion worth of advanced technology from the U.S. between
1950 and 1983 from numerous licensed production programs and had built some 552
planes for JASDF (Table 4-1 & 4-2).

Figure 4-1: F-86J Jet Fighter License-Produced by MHI

Source: JASDF

273
Table 4-1: Japan’s Licensed Production Aircrafts, 1953-2006

Source: SJAC, 2008

Table 4-2: Japan’s Licensed Production Engines, 1961-2005

Source: SJAC, 2008

274
The licensed production in 1950s provided significant opportunities for Japan
to solidify an industrial base and upgrade necessary technologies for modern
aerospace manufacturing capability after the seven years technology blank.
229
Most
importantly, the Japanese aircraft manufacturers were further able to dramatically
raise their competence through the indigenization efforts of Lockheed’s P2V-7 large
patrol antisubmarine airplane (1959) and F-104J jet fighter (1961) by KHI and MHI
respectively (Figure 4-2).
230

Figure 4-2: MHI F-104J Jet Fighter

Source: JASDF

229
SJAC 2008 annual Aerospace Industry in Japan report.

230
Ibid.

275
However, the Japanese government’s intention in promoting licensed
production, increasing indigenization rate, and rebuilding Japan’s postwar aircraft
industry was not attempting to become a major military power to share military
burden in Asia as the U.S. expected. Rather, it was part of Japan’s postwar balanced-
calculation grand strategy, the Yoshida doctrine, to place economic and industrial
development at the highest national priority and at the same time to keep a low
diplomatic and military profile under the U.S. security umbrella. More specifically,
in terms of developing its defense industry (including aircraft industry), Japan has
aimed to concentrate all available resources in promoting rapid development of its
economy and industry. At the same time, it has aimed to obtain “sufficient” defense
capabilities but not to become a major military power nor allow its military and
military industry to grow uncontrollably again like prewar period.
Therefore from 1950s to 1970s, Japan had started to construct its self-
imposed weak military market structure by six main measures following the grand
strategy’s guidance. These postwar institutional arrangements include arms export
control, peaceful use of space, nuclear prohibition, restrictions on the use of military
forces, one percent GNP limitation on defense spending, the use of economic
bureaucrats to plan and control the development of Japan’s defense industry
(including aircraft industry). Unlike the U.S. and many other countries, Japan’s
defense production was not made a priority of the defense authorities. Instead, under
the Law for Enterprises Manufacturing Aircraft and the Law for Manufacturing
Weapons and Munitions, military and aircraft production was placed under the

276
jurisdiction of MITI. These laws required private firms to provide detailed
information about locations, ownership, types of technology used, and capitalization
to MITI. MITI’s Aircraft and Ordnance Division was effectively granted oversight
for the production of all aircraft and parts, as well as munitions and weapons. These
two laws remain the primary laws specifically concerning defense procurement in
Japan.
All self-imposed measures together have constructed a weak military market
structure for postwar Japan to concentrate on developing its economy. However,
upon recognizing the necessity of a military market in developing its economy and
industry, this self-imposed weak military market structure has further invited and
legitimized government interventions in Japan’s economic and industrial
development. Since then, MITI started to utilize its industrial policy to simulate
artificial military markets for Japan’s defense and defense-related industries. The
licensed production strategy is one of the best examples. Japan’s licensed production
strategy aims to use the U.S. to function as its external market mechanism and source
for military aircraft technology upgrading. That is, American aircraft makers have to
go through R&D searching and advancing, conceptualization and design,
development and production, trial and error learning, and fierce market competition
for building competitive end products. However, Japan has adopted and taken
advantage of licensed production projects to skip this market process and learn
directly from the U.S. firms’ superior end products.

277
Moreover, the decision of not becoming a major military power did not
eliminate Japan’s interest in developing the ability to produce weapons and aircrafts
indigenously. With generous technology transfer from the U.S., Japan has put the
highest priority in kokusanka which refers to domestic development, design, and
production to avoid over reliance on foreign suppliers. In addition, this kokusanka
emphasis also resembles the classic import substitution strategy. In July 1970, JDA
director general Nakasone Yasuhiro announced the five guidelines for developing
Japan’s defense industry and military aircraft industry: 1) to maintain Japan's
industrial base for national security, 2) to acquire equipment from Japan's domestic
R&D and production efforts, 3) to use civilian industries for domestic arms
production, 4) to set long-term goals for research and R&D, and 5) to introduce
competition into defense production.
By late 1970s and early 1980s, Japanese suppliers had developed and
produced almost complete range of modern weapon systems and certain types of
highly sophisticated aircrafts including F-15J jet fighter (1981 by MHI) and P-3C
patrol antisubmarine aircraft (1982 by KHI) under licenses (Table 4-1 & Figure 4-3).
Little was purchased complete from foreign suppliers except for the most complex
and costly aircrafts such as the E-2C airborne early warning airplane. And in the
field of engine technology, IHI first licensed-produced General Electric’s (GE) J79
engine for F104 fighter and started a series of licensed production engines such as
the F100 turbofan engine for F-15 and the T56 turboprop for P-3C. It attempted to
close up the huge technological gap between Japan and the world (mainly the U.S.

278
and Europe) resulting from the rapid progress of technological innovation to jet
engines after WWII (Table 4-2).

Figure 4-3: MHI F-15J Jet Fighter

Source: JASDF

Thus, Japan’s postwar industrial policy aimed to simulate four major artificial
market mechanisms for its aircraft industry recovery. The first mechanism was
utilizing licensed production of the U.S. military aircrafts as major external
technology source to recover and upgrade its technological level. In addition, the
government emphasized the kokusanka to create market demands, promote R&D and
production, and at the same time increase its indigenization rate to avoid over

279
reliance on foreign technology. Third mechanism was focusing on dual-use
technology as the only and best solution to promote economic growth and maintain
military capability simultaneously under Japan’s weak military market structure.
And last, MITI had intentionally tried to concentrate and coordinate four major
domestic makers (KHI, MHI, FHI, and IHI) by rewarding them with licensed
production, domestic production, and R&D funding in order to cultivate their aircraft
technological specialties and capabilities in different areas for further cooperation.
For example, the 23 licensed production projects (1953-2006) were almost
equally distributed to three major makers and allowed them to develop their own
specialties (Table 4-1). Within the projects, MHI had 8 projects concentrating on jet
fighter; KHI also had 8 focusing on helicopter and large airplane; and FHI had 7 on
helicopter and trainer (Table 4-1). In addition, IHI has been developing its engine
technology from 10 licensed projects and mainly with GE; KHI had 5 projects and
focused on helicopter engine with Honeywell (Table 4-2). I argue that the early
development of licensed production reflects the long-term intimate government-
industry relation since Meiji period. And this tight government-industry relationship
has been further reinforced by the elites’ market failure mentality under the weak
military market structure in postwar Japan.

4.2.2 Indigenous Development Attempts
Subsequently and also a logical next step, MITI and the aircraft
manufacturers further sought opportunities to promote indigenous R&D and

280
production on both military and civil aircrafts.
231
The indigenous efforts included
such as the T-1 trainer (1960 by FHI), C-1 military transport airplane (1970 by KHI),
T-2 (1971 by MHI), F-1 jet fighter (1977 by MHI), T-4 (1985 by KHI) and the
famous civil transport airplane YS-11 in 1960s (Table 4-3 & Figure 4-4, 4-5). These
efforts also paralleled the U.S.’ generous technology transfer and licensed production
of its fighters and patrol aircrafts such as F-4, F-15, and P-3C. Similar pattern
appeared in jet engine as well. IHI had indigenously developed and produced various
jet engines in supporting other makers’ indigenous aircrafts such as the J3 jet engine
for T-1 trainer in 1962 and F3 jet engine for T4 in 1987 (Table 4-4).

Table 4-3 Japan’s Indigenous Aircrafts, 1953-2002

Source: SJAC, 2008

231
David D. Friedman and Richard J. Samuels. 1993. How to Succeed without Really Flying: The
Japanese Aircraft Industry and Japan's Technology Ideology, in J. A. Frankel and M. Kahler, eds.
Regionalism and Rivalry: Japan and the United States in Pacific Asia, Chicago: University of
Chicago Press; Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the
Technological Transformation of Japan. Ithaca: Cornell University Press.

281
The same with Japan’s licensed production strategy, these indigenous efforts
also reflect the same government intention in utilizing industrial policy to simulate
artificial market incentives for establishing a highly specialized, division of labor and
cooperative/collaborative aircraft industry. Major domestic makers were given
almost equal work share of public indigenous projects in accordance to their
specialties established during previous licensed production.

Figure 4-4: FHI T-1 Trainer

Source: FHI

282
Figure 4-5: MHI F-1 Jet Fighter

Source: JASDF

Table 4-4: Japan’s Indigenous Engines, 1962-2006

Source: SJAC, 2008

283
4.2.2.1 The YS-11 Project
The YS-11 project is the best case to demonstrate the embedded problems
from Japan’s postwar self-imposed weak military market structure in distorting the
development of its aircraft industry. It is also the typical example to show how the
government used industrial policy to simulate artificial markets to cultivate makers’
technological capabilities and provide them with profit incentives in countering
market imperfections. It is also to illustrate Japan’s early indigenous efforts to
overcome constrains and limitations of licensed production by indigenously
developing and producing Japan’s first medium-sized commercial transport aircraft.
Most importantly, it also illustrates the limitations of Japanese industrial policy in
providing sufficient market incentives to sustain the growth of its aircraft industry
under structural constraints. At the same time, it also exposes Japan’s technological
weaknesses, and shows the technology self-validating and experiment nature of
indigenous projects.
In 1957, the Aircraft Industry Association set up the Commercial Transport
Design Research Association (Yusoki Sekkei Kenkyu Kyokai, Yuken) under MITI’s
support. In 1958, Japan’s aircraft industry entered another development stage (or
strategy) with the Diet passed the Aircraft Industry Promotion Law using national
budget to cover the design, development, and production of YS-11 project. It
established a public-policy company, Nihon Airplane Manufacturing Company
(NAMCO) in 1959 to carry out the overall development of YS-11. It was a
government-industry 50-50 joint venture based on the public-private consortium

284
developed from Yuken, however with the government bearing all financial burdens.
The main functions of NAMCO were to coordinate and consolidate work share of
private firms, promote and facilitate joint R&D activities, in charge of testing and
marketing. Most importantly and problematically, it guaranteed returns to the
participating manufacturers.
232
As such, domestic makers, such as MHI, KHI, FHI,
ShinMaywa, and Showa, collaboratively undertook actual R&D, conceptualization
and design, and production as subcontractors under NAMCO’s coordination.
As a result, Japan successfully launched the 64-seat twin-turbo-prop YS-11
commercial transport and entered mass production in 1962 (Figure 4-6). However,
the results were mixed and controversial results.
233
First, there were only 182 units of
YS-11 produced from this project (1962-1974). And most of them were used in
Japan due to the lack of market-related activity, capability, experience, reputation,
and support network outside Japan. However, to Japanese government and industry,
YS-11 was a necessary platform to validate its decade-long accumulated modern
aircraft manufacturing capabilities and many indigenous technologies, especially
system integration capability. In addition, it was also a national experiment to
spillover some licensed-produced military technologies to commercial airplane such
as the adoption of KHI and Lockheed coproduced P2V-7’s landing gear for YS-11.

232
Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the Technological
Transformation of Japan. Ithaca: Cornell University Press. pp. 210-214.

233
Ibid.

285
Moreover, the YS-11 project was proven to be a financial failure, especially
with MITI’s problematic return guaranty which was considered by many experts as
the major failure cause.
234
It did not stimulate any incentives or motives for
technological innovation from private makers.
235
However, I argue, public measures
(functioning as artificial market incentives) such as this problematic return guaranty
were indispensable and important elements of Japanese industrial policy in
promoting aircraft industry under its weak military market arrangements. Without
these artificial market incentives, Japanese manufacturers might simply turn their
heads away from aircraft industry since there was not sufficient market demand, or
just concentrate on other large market and low-risk works.

Figure 4-6: Japan’s YS-11 Commercial Transport Plane

Source: ANA

234
Ibid.

235
Ibid.

286
4.2.3 International Joint Production
Thus, MITI’s aircraft industry development strategy shifted again after the
failure of YS-11.
236
It shifted from purely public-supported indigenous projects to a
series of international joint projects with American and European firms, mainly three
major projects (B767, B777, and F-2) with Boeing and the U.S. government (Table
4-5).
237
According to Samuels, Japan’s indigenous production strategy was forced to
change in 1970s due to two major reasons.
238
First is the mixed result of YS-11
project. And second is the rapid change of global environment for aircraft industry.
The airlines demanded for larger, faster, lower operation cost, and high performance
aircraft which steadily increased cost and risk pressure on aircraft manufacturers.
Under this circumstance, major aircraft manufacturers such as Boeing decided to
look for international partners and suppliers under international collaboration project
(ICP) strategy to share cost and risk.
And from Japan’s perspective, there are four major reasons drove MITI to
support international joint production. First, with international joint projects, Japan’s
aircraft industry could acquire advanced aircraft technology from their foreign
partners without huge expenses on indigenous R&D.
239
Second, it could compensate

236
Kimura Seishi. 2007. The Challenges of Late Industrialization: The Global Economy and the
Japanese Commercial Aircraft Industry. New York: Palgrave Macmillan.

237
Ibid.

238
Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the Technological
Transformation of Japan. Ithaca: Cornell University Press, pp. 252-259.

239
Ibid.

287
for Japan’s insignificant domestic commercial aircraft market.
240
Third, Japanese
manufacturers could benefit from foreign military technology in collaborative
projects to alleviate the structural problems embedded in the weak military market
structure. Finally, the international joint projects could create sufficient market
demand, increase reputation, and establish marketing and service network for
Japan’s aircraft industry.
241
Here again, Japanese industrial policy reflects strong
intention to simulate artificial markets in countering the structural problems
embedded in weak military market arrangement. It also illustrates the government
leadership and bureaucrat’s plan rational in guiding the development of Japan’s
aircraft industry, rather than market mechanisms.

Table 4-5: Japan’s Joint-Production Aircrafts, 1982-2008

Source: SJAC, 2009

240
Ibid.

241
Kimura Seishi. 2007. The Challenges of Late Industrialization: The Global Economy and the
Japanese Commercial Aircraft Industry. New York: Palgrave Macmillan.

288
4.2.3.1 Boeing 767 ICP Project
Thus, MITI started to utilize several direct and indirect measures of its
industrial policy to simulate various artificial market incentives in providing R&D
direction and attracting private participation and investment in diverse ICP projects.
In 1973, Japan’s major aircraft manufacturers established the Civil Transport
Development Corporation (CTDC) to take over NAMCO’s role in coordinating
aircraft production consortium. It was to carry out Japan’s YX project following the
government’s strategy/policy shift from purely public-support indigenous project to
success-condition loans to avoid moral hazard experience from YS-11. In 1978,
Japanese government chose Boeing as the primary partner and expected to absorb
more advanced technology from combining its YX project and Boeing’s 7X7 project
into the YX/7X7 ICP project. Under MITI’s guidance, CTDC negotiated and signed
an ICP agreement with Boeing in merging the YX efforts with Boeing’s new 7X7
(B767) development, a 230 passenger wide-bodied aircraft. Under the agreement,
CTDC obtained 15 percent work share (mainly airframes) of the YX/7X7 ICP
project and subcontracted to three major domestic makers: FHI for producing the
landing-gear door and wing-to-body fairings; KHI was assigned production of
fuselage panes and exit hatches; and MHI was assigned production of parts including
the cargo doors and the dorsal fin, under CTDC’s responsibilities allocation and
coordination (Figure 4-7).

289
Figure 4-7: Japan’s Work Share in Boeing 767

Source: JADC, 2003
Note: Orange color indicates Japan’s workshare: M, MHI; K, KHI; F, FHI; N, Japan Aircraft
Manufacturing; S, ShinMaywa Industry Co.

And in 1982, Boeing terminated the ICP project as the B767 entered mass-
production stage. According to Friedman and Samuels, this B767 ICP project
illustrates the important changes of government role and strategy in promoting
aircraft industry such as the use of CTDC and the risk-taking nature after YS-11.
242

242
David D. Friedman and Richard J. Samuels. 1993. How to Succeed without Really Flying: The
Japanese Aircraft Industry and Japan's Technology Ideology, in J. A. Frankel and M. Kahler, eds.
Regionalism and Rivalry: Japan and the United States in Pacific Asia, Chicago: University of
Chicago Press.

290
Although CTDC was also a government-industry joint venture, however, the pattern
of risks-sharing and responsibilities within the joint venture changed from the
government bearing all financial risks to risk-sharing. That was the government to
continue bearing R&D cost and the private firms to take the final business risks in
actual production and marketing. Therefore, MITI withdrew from direct involvement
in the project by dissolving CTDC when the Boeing 767 certified in 1982. It then
allowed the private-owned Commercial Airplane Corporation to carry out actual
production and marketing activities.
In the end of B767 R&D phase (1982), CTDC’s share of R&D cost amounted
to $145.5 million with MITI provided 50 percent of it as success-condition loans on
the project’s financial success.
243
In general, both Boeing and Japan mutually
benefited from the B767ICP project.
244
Boeing could significantly lower the overall
R&D and production costs with cheaper and high quality Japanese made components
to increase its international competitiveness. In addition, it also established reliable
partnership and collaboration experience with major Japanese producers while
gained access to Japanese market. To Japan, the ICP project offered the best
opportunity to access to cutting edge aircraft technology and gain actual production
experience. However, it was not able to obtain access to the upstream

243
JADC. 2008. Related Data of Civil Aircraft Industry: The Summary of Past Development and
Current Status of Japan’s Civil Aircraft Related Production. Tokyo: JADC.

244
David D. Friedman and Richard J. Samuels. 1993. How to Succeed without Really Flying: The
Japanese Aircraft Industry and Japan's Technology Ideology, in J. A. Frankel and M. Kahler, eds.
Regionalism and Rivalry: Japan and the United States in Pacific Asia, Chicago: University of
Chicago Press.

291
conceptualization and design as well as downstream marketing activities under
Boeing’s control growth strategy.

4.2.3.2 Boeing 777 ICP Project
Thus, with the successful experience from Boeing 767 ICP project in
developing Japan’s civil aircraft industry, MITI decided to apply the same strategy
and push it further by conducting more direct and indirect industrial policy measures
in simulating more artificial market incentives. In 1982, the newly established Japan
Aircraft Development Company (JADC) took over CTDC to carry out Japan’s next
indigenous 100-150 passenger commercial aircraft YXX project. It decided to
collaborate again with Boeing with the successful experience of B767. In 1986, the
Japanese Diet revised the 1958 Aircraft Industry Promotion Law to further support
and encourage Japanese manufacturers to participate in international collaboration
projects to deepen diversification of Japan’s aircraft industry by establishing the
International Aircraft Development Fund (IADF). In addition, the law authorized
MITI to provide grants and low-interest loans from Japan Development Bank (JDB)
to IADF which offered success-condition loans to the aircraft manufacturers and
received repayment.
With active public support and private engagement, JADC successfully
reached the YXX/7J7 (B777) ICP agreement with Boeing in 1990 and obtained a 21
percent work share. Most importantly, it included Japan’s participation in early
design and final marketing phases. On the other hand, Samuels points out that two

292
main reasons made Boeing keep favoring Japan as its major ICP partner. First,
Boeing was under fierce challenge from McDonnell Douglas MD11 and Airbus
A330. It had to rely on Japan’s generous public investment and strong manufacturing
capability for risk sharing as well as cheaper and high quality components to lower
its costs and increase competitiveness.
245
And second is to gain favorable access to
Japanese market.
246
Following the same pattern, JADC subcontracted the work
package to three major domestic manufacturers: MHI, KHI, and FHI for
manufacturing fuselage, wings and tail cone under JADC’s coordination (Figure 4-
8). In addition, in order to share the fruit and upgrade the overall technological level
and experience of more domestic makers, under MITI’s strong support, JADC had
further included some 30 Japanese manufacturers in this new ICP project as
suppliers such as Nippi and ShinMaywa as special subcontractors of KHI and FHI
respectively.
And just like the B767 project, the result of B777 project satisfied both Japan
and Boeing in terms of technological and financial aspects.
247
There were 424 orders
of B767 and 619 orders of B777 in the end of 2002, according to JADC. However,
Boeing still kept its control growth strategy to limit possible technology transfer to a

245
Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the Technological
Transformation of Japan. Ithaca: Cornell University Press.

246
Ibid.

247
David D. Friedman and Richard J. Samuels. 1993. How to Succeed without Really Flying: The
Japanese Aircraft Industry and Japan's Technology Ideology, in J. A. Frankel and M. Kahler, eds.
Regionalism and Rivalry: Japan and the United States in Pacific Asia, Chicago: University of
Chicago Press.

293
minimum level, especially in conceptualization, design, and marketing activities. To
Japan, the successful experience from Boeing’s B767 and B777 projects have further
enhanced Japanese manufacturers’ technological level and capabilities, and at the
same time provided them with needed experience, reputation, and access to further
collaborate with more major international manufacturers and system integrators such
as Airbus.

Figure 4-8: Japan’s Work Share in Boeing 777

Source: JADC, 2003

294
4.2.3.3 V2500 Engine ICP Project
In addition to the participation in major aircraft development ICP projects,
Japan had also paid attention to its traditionally main weakness in aircraft industry,
the jet engine technology, by actively applying the same strategy pattern in several
engine ICP projects, and again with strong government support. For instance, the
Japanese Aero-Engine Corporation (JAEC), in representing three Japanese
manufacturers (MHI, KHI, and IHI), participated in Rolls Royce’s RJ-500 turbofan
engine ICP project and signed a 7-year 50-50 agreement in 1979, with MITI to
provide success-condition loans to cover 75 percent R&D cost, 66 percent of
prototype development cost, and 50 percent of the remaining development costs.
248

However, this RJ-500 ICP project further expanded into a multinational ICP project
(the V2500 project) and included Pratt & Whitney (P&W) of the U.S., Fiat of Italy,
and Motoren-und Turbinen-Union (MTU) of West Germany in 1983 (Figure 4-9).
Under the new ICP agreement, Rolls Royce and P&W each took 30 percent
of R&D costs and JAEC bear 23 percent, of which 50 percent was provided by
MITI.
249
The successful experience from V2500 ICP project gave Japanese aero-
engine industry an initial and best opportunity to tap the engine market for regional

248
According to SJAC, MITI had provided around $60 million to RJ-500 ICP project in 1982, which
was about one-third of the total R&D cost of the project.

249
Ibid.

295
and business jet planes as well as a good starting point to further develop aero-engine
technology, capability, and reputation by various ICP projects.
250

Figure 4-9: Work Share of V2500 Engine

4.2.3.4 FS-X/F-2 Fighter Joint-Development Project
Within Japan’s international joint development aircraft projects, the FS-X
(also known as F-2 project) was the most controversial case. At the same time, it is
the best example to illustrate the impacts of Japan’s self-imposed weak military

250
David D. Friedman and Richard J. Samuels. 1993. How to Succeed without Really Flying: The
Japanese Aircraft Industry and Japan's Technology Ideology, in J. A. Frankel and M. Kahler, eds.
Regionalism and Rivalry: Japan and the United States in Pacific Asia, Chicago: University of
Chicago Press.

296
market structure. This project was initially Japan’s indigenous military aircraft
project but resulted in a large-scale modification of the U.S. Lockheed Martin F-16
C/D Block 40 fighter. In addition, it was out of the U.S.’ intention to enhance
bilateral technology exchange, however, it turned into a major dispute, created
domestic resentment on both sides.
251
It has further affected the U.S. policy shift in
technology transfer to Japan, and Japan’s strategy in developing its aircraft
industry.
252

In 1985, JDA began to consider in developing an indigenous jet fighter, the
FS-X, to replace its aging F-1 fighter. It was with three potential development
options: domestic development, adoption of an existing domestic model, and
adoption of a foreign model. Originally, both government agencies (MITI and JDA)
and industry favored domestic development, however, the U.S. preferred Japan to
purchase an off-the-shelf U.S. fighter and started lobbying and putting pressure on
Japanese government.
253
As a compromise, Japan signed the FS-X Memorandum of
Understanding with the U.S. in 1988 and agreed to cooperatively develop Japan’s
FS-X fighter based on Lockheed Martin F-16 C/D Block 40, with Japan bearing all
financial burden ($14 billion) including both R&D and production phases.
254
This
joint development project had been implemented almost exclusively through

251
Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the Technological
Transformation of Japan. Ithaca: Cornell University Press.

252
Ibid.

253
Ibid.

254
The 1988 U.S.-Japan Agreement on F-2/FS-X Production.

297
commercial contracts.
255
JDA selected MHI as the prime contractor along with major
domestic subcontractors including KHI, FHI, and IHI, as well as Lockheed Martin
and GE as the major U.S. subcontractors.
256

However, this joint development agreement raised the U.S. Congress’ heavy
criticisms and concerns on loss of key technologies, risks of Japanese
commercialization of technology at U.S. expense, and insufficient work share for the
U.S. firms in the project. As a result, in 1989, the U.S. government demanded and
revised the agreement in order to restrict technology transfer, specify 40 percent of
work share for the U.S. firms, and demand technology flow-back.
257
That was for the
U.S. to receive free and automatic flow-back of derived F-16 technologies and have
access to Japanese indigenous (non-derived) technologies developed from this
project. This revision created serious controversy and dispute and left bitterness on
both sides, especially about the distinction of derived and non-derived
technologies.
258
From Japanese perspective, the government was irritated at the U.S.
pressure to renegotiate and the industry was not satisfied with the high work share

255
The U.S. General Accounting Office (GAO) National Security and International Affairs Division
(NSIAD)’s 1997 (GAO/NSIAD-97-76) report to the Congress on U.S.-Japan’s agreement on F-2
production.

256
Ibid.

257
The 1989 U.S.-Japan Agreement on F-2/FS-X Production.

258
The U.S. General Accounting Office (GAO) National Security and International Affairs Division
(NSIAD)’s 1997 (GAO/NSIAD-97-76) report to the Congress on U.S.-Japan’s agreement on F-2
production.

298
for the U.S. firm and was convinced that an indigenous FS-X would be superior to a
modified F-16.
259

Nevertheless, the development phase began in 1989 and ended in 2000
including the development of four prototype FS-X incorporating four major Japanese
indigenous technologies: active phased array radar, integrated electronic warfare
system, inertial reference/navigation system, and mission computer. In 1993, the
U.S. agreed to reclassify radar absorbing material as the fifth Japanese indigenous
technology.
260
In terms of technology exchange, for example, MHI’s co-cured
composite technology to produce the F-2 wings including materials, process
specification, and tooling, was transferred to Lockheed Martin in the project.
261
In
1995, Japan launched the test flight of the first prototype aircraft and approved 15-
year production of 130 units of F-2 fighter at about $80 million each (triple the price
of a F-16 C Block 50).
262
In 2000, MHI officially delivered the first F-2 fighter to
JDA and the total R&D cost amounted to about $5 billion (Figure 4-10).
263
However,
there were only 81 units of F-2 produced and delivered as of 2008 due to the

259
Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the Technological
Transformation of Japan. Ithaca: Cornell University Press.

260
The U.S. General Accounting Office (GAO) National Security and International Affairs Division
(NSIAD)’s 1997 (GAO/NSIAD-97-76) report to the Congress on U.S.-Japan’s agreement on F-2
production.

261
Ibid.

262
Ibid.

263
Nikkei Shinbun, November 25, 2000.

299
Japanese government terminated the production as part of its midterm defense
review plans.
264

Figure 4-10: Japan’s F-2 Fighter

Source: JASDF

In sum, the dispute and unpleasant experience resulted from this FS-X/F-2
joint development project reflects certain facts. First, in the past, the U.S.
policymakers’ economic concern of technology transfers to Japan was justified by

264
Nikkei Shinbun, December 13, 2008.

300
the military benefits.
265
However, with the U.S.’ crucial economic environment in
1980s, these technology-transfer projects were viewed under a more critical light. In
addition, the long-term unbalanced technology flow between the U.S. and Japan has
raised questions and doubts in the U.S. domestic politics, in combing with the
unbalanced trade problems of both countries at that time. Third, this case fully
illustrates the protected nature of aircraft industry and with highly political,
economic, and military sensitivities, with the U.S. government’s control growth
strategy and Japan’s attempts to overcome licensed production constrains. Forth, it
also exposes the problems of Japan’s long-term reliance on external technology
source resulting in losing strategic activeness. And most importantly, this case
demonstrates how the self-imposed weak military market structure has distorted the
development of Japan’s aircraft industry. Moreover, the controversial results of this
joint project has given opportunity for both countries to rethink and adjust their
policies/strategy, namely the U.S. policy shift in technology transfer and Japan to
change its strategy to seek for more indigenous efforts and diverse ICP opportunities
in order to move away from heavy reliance on the U.S.
Under the U.S. security umbrella, Japan’s postwar grand strategy has aimed
to build a weak military market structure in order to concentrate resources on
economic development. In turn, the drawbacks of this institutional arrangement has
invited and legitimated government intervention in Japan’s aircraft industry

265
Ibid.

301
development. The government has facilitated industrial policy to simulate artificial
markets (including military markets) by promoting licensed production, joint
development projects, indigenous projects, and military procurements. These
projects have provided domestic makers with stable market demand, external sources
for technology-upgrade, profit incentives, R&D direction, and trial and error learning
experience. All the efforts have aimed to upgrade modern aircraft technology and
manufacturing capabilities, increase indigenous production rate, and consolidate
industrial base for an indigenous aircraft industry.
There are four major strategies of the government’s industrial policy in
promoting the early development (1950s to 1990s) of Japan’s aircraft industry. First,
it aimed to is to rely on external source for aircraft technology-upgrade through
licensed production and international joint development projects. In addition, the
government policy had emphasized domestic production in order to generate a self-
sufficient aircraft industry. This import substitution was a necessary step for Japan to
develop domestic aircraft markets and consolidate industrial base. And it aimed to
fuse military and civilian aircraft technologies in order to raise local production rate.
As such, the Japanese government had focused on establishing long-term relations
and commitments with major domestic makers by increasing defense budget and
public funding for defense-related R&D to ensure their steady revenue as a motive to
maintain domestic aircraft production.
Moreover, both the government and industry have emphasized on dual-use
aircraft technology rather than military-unique technology or product. They have

302
recognized the use of dual-use technology as the best solution to achieve economic
growth and maintain military capability simultaneously under the weak military
market structure. They have utilized the defense budget as a mean to raise the
industry’s general level of technological expertise. As such, Japan has chosen to
forego the cutting-edge weaponry and military technology. It has treated production
of defense equipment as an adjunct to the civilian economy in order to preserve an
up-and-running indigenous industrial base. And the last strategy was to use
indigenous projects to cultivate critical technological capabilities for such as system
integration. In general, previous Japanese indigenous military aircraft projects
showed little intention to create superior or cutting-edge systems. The Mitsubishi F-1
fighter in the 1960s is the best example, despite its high costs and not any
performance advantage over the U.S. F-104. It had served as a self-validating project
to test the overall modern (or jet-engine) aircraft manufacturing and system
integration capabilities of Japan’s domestic producers.
Japan’s early industrial policy in simulating artificial markets to promote its
aircraft industry had followed a classical import-substitution pattern and aimed to
promote indigenous capabilities for a self-sufficient aircraft industry. As Frenkel
asserts, the highly flexible and adaptive characters of industrial policy were
illustrated by the country’s efforts to enter the world aerospace industry, an industry
in which Japan is handicapped by the absence of a substantial domestic market and

303
an export military market.
266
Too meet the challenge, Japan has concentrated its
efforts on altering the structure of the world market in which it hopes to compete.
Japan has participated systematically in international consortia, hoping to use such
consortia as a conduit for acquiring access for foreign technology and foreign
markets. On the macro-level, MITI used measures to change the structure of the
industry (such as relaxing antitrust laws) and measures to change the industry’s
competitive position (such as market protection, direct government loans, and public
procurement). On the micro-level, MITI arranged close cooperation between itself
and the industry in implementing the industry promotion plan through institutional
setup. MITI created a network of industry advisory councils at achieving
coordination, avoiding duplication in research, providing the necessary capital, and
rationalizing production plans.
He concludes that the success of Japanese industrial policy can be partially
attributed to MITI’s ability to tailor its general themes to fit the needs of specific
industries. In sum, Japan’s early strategy was effective to reach its initial goals of
rapid recovery of its aircraft industry, obtaining competent industrial base, and
upgrading modern aircraft manufacturing capability. It has made Japan become the
most reliable 2
nd
and 3
rd
tier supplier to major system integrators in the world.
However, with the U.S. government and Boeing’s control growth strategy and the
repeated failures of indigenous projects such as YS-11, F-1, and F-2, the strategy has

266
Orit Frenkel. 1984. Flying High: A case study of Japanese industrial policy, Journal of Policy
Analysis and Management, Vol. 3, No. 3. (Spring, 1984), pp. 406-420.

304
failed to make Japan an independent aircraft developer and resulted in current
weaknesses of Japan’s aircraft industry.

4.3 CURRENT STATUS AND INTERNATIONAL ENVIRONMENT

4.3.1 Current Status of Japan’s Aircraft Industry
In early 1990s, Japan was widely assumed to be on the fast track toward a
strong aviation industry.
267
Japan enjoys strong advantages in government industrial
policy, industrial structure, technology, finance, manufacturing processes, and
corporate organization in many industries, especially electronics, shipbuilding,
robotics, and automobile. In addition, Japan has long-term experience from licensed
production and joint development projects with various international aircraft makers.
Especially, Japan has been Boeing’s largest and most reliable supplier for decades.
This reflects the well-known capacity of Japanese producers to absorb and improve
foreign technologies facilitated by their expertise in related technologies and
industries such as robotics, electronics, and composite materials. As a result of
decade-long development, Japan’s major strengths are in production-related

267
Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the Technological
Transformation of Japan. Ithaca: Cornell University Press; Moses Abramovitz. Catching Up, Forging
Ahead, and Falling Behind, Journal of Economic History. 1986. 46(2): 385-406; Soren Eriksson.
1995. Global Shift in the Aircraft Industry: A Study of Airframe Manufacturing, with Special
Reference to the Asian NIEs. Goteborg University; Richard Aboulafia. Japan’s Military Aircraft
Slump, Aerospace America, August 2006.

305
activities and manufacturing methods in aircraft industry. It has become the most
reliable 2
nd
and 3
rd
tier supplier in the global aircraft industry.
Many industry leaders, experts, and economists thought the Japanese
government had a strategy to leverage its limited domestic military works and global
jetliner subcontracts into a larger goal. Yet the repeated failures of indigenous
projects have made the assessments today yield different conclusions, especially in
its military aviation industry.
268
Japan’s military aircraft efforts have resulted in
expensive and inefficient domestic military procurements and licensed produced
aircrafts. Commercial works have not seen major progress and become piecemeal.
The current results have raised questions about the government’s long-term aviation
industrial policy under the postwar weak military arrangements.

4.3.2 Major Weaknesses and Embedded Structural Problems
In general, Japan’s aircraft industry has four critical technological
weaknesses making it difficult to take off or become independent, according to
Mitsubishi Research Institute and SJAC: conceptualization competences, market-
related competences, core technology competences such as engine, and system
integration capability.
269
In others words, Japan lacks the capabilities of market
research and marketing capability to collect information of customers’ demands and

268
Ibid.

269
SJAC 2008 annual Aerospace Industry in Japan report; Mitsubishi Research Institute 2006
Evaluation Report on the Current Status of Japan’s Aircraft Industry.

306
also lacks of the capability to incorporate/conceptualize these information into
product concept and design. In addition, Japan lacks the experience/capability of
conducting after-sale customer service through a complete service network.
Moreover, Japan is short of independent competences in developing core
technologies such as powerful and efficient aircraft engines. It is also short of
experiences and capabilities in integrating various aircraft components into a
complete and reliable system.
Based on my observation, Japan’s major technological weaknesses were
resulted from the interplay of the reinforced factors (the U.S. generous licensed
production opportunities; the U.S. government and Boeing’s control growth strategy;
protected nature and fierce competition of aircraft industry) and Japan’s early
development strategy (heavy reliance on external technology sources; experiment
nature of indigenous projects) on two major market imperfections, namely the
insignificant domestic civil aircraft market and the self-imposed weak military
market structure. In turn, all these factors together have molded the current
characteristics and problems of Japan’s aircraft industry. The insignificant size of
aerospace turnover and domestic civil aircraft market could not function as a
sufficient source of purchases for the industry to develop experience, improve
quality, and bring down costs before starting to export.
270
The turnover of Japanese
aerospace industry is small-scale in comparison with major countries such as the

270
Ibid.

307
U.S. and European countries. With annual sales only about $8 billion, Japan's
aerospace industry is half the size of Germany and Britain, one third of France, and
just one-tenth of the U.S., according to SJAC (Figure 4-11). In addition, Japanese
airlines carry only about 5 percent of the world’s passenger air traffic, in contrast to
the 35 percent carried by American airlines in 2005.
271
Thus, Japanese producers
have to rely heavily on the international market, however, operate under a
considerable handicap without reputation and market network and with strong
competition from the entrenched American and European producers.

Figure 4-11: Aerospace Industry Turnover of Major Countries, 2005-2006

Source: SJAC, 2008

271
SJAC 2006 annual Aerospace Industry in Japan report.

308
Moreover, Japan’s competitive problems in aircraft industry were further
exacerbated by Japan’s postwar self-imposed weak military market structure, namely
limited domestic military market, the absence of export market, and the lack of
active military strategy. Thus, it could not provide enough profit incentives, scale of
economies, R&D direction, trial and error learning opportunities, and market
competition pressure. It has resulted in much greater impacts and more embedded
structural problems for Japan’s aircraft industry than the government and industry
originally expected.
272

The first problem is the heavy reliance on external technology source. Japan
has chosen the licensing route to use the U.S. as a major external technology source
than the outright purchases of the U.S. military aircrafts. For instance, in 1978 Japan
decided to licensed produce the U.S. F-15 fighter even though such production
entailed costs per plane were approximately double than a direct purchase.
273
Japan
thought it worth paying the high cost in the short run in order to secure the
technological base for long-term.
274
Thus, Japan's major aerospace manufacturers
have long been engaged and relied heavily on external technology sources to
upgrade its overall aviation technological level through licensed production on the
U.S. military aircrafts and joint development of civil aircrafts, aircraft engines, and

272
SJAC’s annual reports in the late 1980s and MITI’s Survey Report of the Status of Aerospace
Industry confidently stated that Japan was well positioned to develop toward a strong and independent
aircraft industry with the government and industry’s active promotion and engagement.

273
Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the Technological
Transformation of Japan. Ithaca: Cornell University Press.

274
Ibid.

309
aircraft components with overseas manufacturers, mainly with Boeing. Japanese
firms, in turn, have developed extensive expertise and partnerships with multiple
foreign manufacturers and suppliers.
275

However, this strategy was only good enough for Japan to recover and
upgrade modern aircraft manufacturing capabilities and consolidate industrial base
rapidly from war. The long-term passiveness in defense policy and heavy reliance on
external sources of technology-upgrading together with the U.S. government and
Boeing’s control growth strategy in both licensed production and joint development
projects have seriously limited and weakened Japanese domestic producers’ motives
and capabilities in conducting independent R&D activities, especially in core
technologies such as engine. In addition, the overall environment has not encouraged
and provided Japanese producers enough motives and profit incentives to develop
further in core aircraft technology and system integration capability but to
concentrate on low-risk and profit-making jobs and maintain stable domestic military
procurements. Although Japan could leverage its strength in manufacturing and mass
production, however, the licensed production and joint development strategies could
only make Japan the best 2
nd
and 3
rd
tier supplier but not an independent system
developer. Moreover, the ability of Japan’s defense industry to support the

275
According to SJAC 2008 annual report, the major Japanese makers’ partnerships with foreign
manufacturers are as: IHI with General Electric, Rolls-Royce, Pratt & Whitney, Hamilton Sundstrand,
Woodward Governor, Honeywell, BAE Systems, Unison Industries, Rosemount, WWFST, Coltec,
Sermatech, Gator Gard; KHI with Chandler-Evance, McDonnell Douglas Helicopter, Allied Signal,
United Technologies, Rolls-Royce, Boeing, Lockheed Martin, Embraer, Eurocopter; MHI with
McDonnell Douglas, Boeing, Raytheon, Sikorsky Aircraft, Lockheed Martin, Bombardier; and FHI
with Bell Helicopter Textron, Teledyne Ryan, GTE, Boeing, Raytheon.

310
technological development of civilian aircraft is further limited by the fact that
almost all Japan’s military aircraft are produced under license. SJAC repeatedly
points out in its annual reports (from 1990s to 2008) that heavy dependence on
licensed production poses a number of impediments to developing an indigenous
aircraft industry. SJAC contends that licensed producers are limited by being able to
develop expertise only in the specific area covered by the license. It is difficult for
the producer to develop a solid based of technology, equipment, and human expertise
as long as the producer relies heavily on foreign licenses. In sum, both licensed
production and international joint development have weaken Japan’s indigenous
capabilities and further increase the failure possibility of Japan’s domestic
indigenous aircraft project in both military and civil aircrafts such as the YS-11, F-1,
and F-2 projects.
The second main problem of Japan’s aircraft industry is the heavy reliance on
the limited domestic military procurement. Recognizing that situation, Japan’s
aircraft industry is further troubled by its continued heavy reliance on the domestic
military procurement, which accounts for around 55 percent of its overall turnover
(Figure 4-12).
276
Moreover, Japan’s defense market (including military aircraft
industry) is highly oligarchic and concentrated with nearly 55 percent of Japanese
defense contracts were awarded to the top five manufacturers: MHI, KHI, FHI,

276
SJAC annual Aerospace Industry in Japan reports from 1991 to 2008.

311
Mitsubishi Electric Corporation (MELCO), and Toshiba.
277
Within that, MHI has
been and remains by far the most important contractor, accounting for one-fourth of
all defense production over the last several years.
278

Figure 4-12: Breakdown of Japan’s Aircraft Industry Turnover from 1991 to 2006

Source: SJAC, 2008; in billion JPY

According to SJAC, in 2001, Japan's aircraft industry produced about 1,032
billion JPY worth of aircraft, aircraft parts, aircraft engines, avionics, and aircraft
repair and maintenance service, of which domestic military procurement by JDA
accounted for 56 percent; exports to overseas partners for 35 percent and other

277
Ibid.

278
Ibid.

312
domestic demand (mainly civil aircraft) for only 9 percent.
279
More recent survey
reflects similar facts but with an increasing expansion on the export sector. For
instance, the overall turnover in 2006 amounted to 1,374 billion JPY, increased 7.9
percent from 2005’s 1,273 billion JPY.
280
By breakdown, the defense demand
became 543 billion JPY at 48 percent of aircraft production, for the first time less
than 50 percent, and exports became 410 billion JPY at 36 percent reflecting the
extensive production partnerships of Japanese manufacturers with Boeing and other
aircraft and aircraft engine makers.
281

Moreover, the government’s (mainly MITI and JDA) longstanding policy in
emphasizing domestic production has provided a stable market demand and
incentives to major domestic makers in satisfying over 80 percent of the very limited
domestic military markets (including military aircrafts) compared to other
industrialized countries and relatively to Japan’s economic and industrial production

279
By breakdown of the 2001 turnover, airplanes, helicopters and gliders accounted for 17 percent,
airframes, parts, accessories and interiors for 34 percent, aircraft engines and parts for 20 percent,
avionics for 6 percent and repair and maintenance service for 19 percent, according to SJAC 2003 the
Aerospace Industry in Japan report.

280
The breakdown of 2006 turnover is ¥1,139 billion for the aircraft sector and ¥235 billion for the
space sector. Although the turnover was falling to the low figure level at one time, the 2006’s turnover
was in a recovery trend through growing exports of civil aircraft. It is expected that the export of
airframe and engine for commercial aircraft will spread or that a space-related scale will escalate. The
airframe and its parts/ accessories increased by ¥62 billion to ¥682 billion and became 60 percent of
aircraft production. The engine and its parts increased by ¥25 billion to ¥330 billion and became 29
percent, and the related equipment increased by ¥3 billion to ¥127 billion and became 11 percent,
according to the SJAC 2008 Aerospace Industry in Japan report.

281
SJAC 2008 Aerospace Industry in Japan report.

313
size.
282
This domestic military production has given Japanese firms opportunities to
develop their specialties in airframes and avionics, however with less progress in jet
engines. In addition, the government has also tried to ensure equitable work share
among these firms regardless of which company acts as the prime contractor on any
given project (Table 4-1, 4-2, 4-3, 4-4, & 4-5). Since the major private makers are
highly specialized, they tend to cooperate, rather than compete, to share domestic
military procurement under the government’s coordination. For example, major
producers are well organized under such as Keidanren’s Defense Production
Committee (DPC) and SJAC and the officials of these groups often serve on
advisory panels to MITI and JDA to lobby the government and cooperate in multi-
company endeavors. For instance, MHI is the prime contractor for the F-15
interceptor and KHI produces the P-3C antisubmarine surveillance aircraft, FHI
plays the primary role in the production of the AH-l S antitank helicopter. IHI
dominates the market for jet engines, producing over 70 percent, while KHI and
MHI produce the remainder. Therefore, in the Japanese defense market, there are
rarely clear-cut winners and losers.
The third problem is the side-job nature of aircraft related production for
domestic makers. Private producers have tended to treat the government’s military
procurement as stable side jobs. According to MITI and SJAC, during the 1990s,
defense production accounts for only 0.5 percent of Japan’s total industrial output,

282
Ibid.

314
and defense related sales represent small percentages of total sales for most
companies. There are 28 major domestic manufacturers leading Japan’s aerospace
industry and are consolidated under SJAC. One major and common characteristic of
these aerospace actors is that production of aerospace products is only a portion of
their business or side-job.
283
For most Japanese corporate equivalents of American
prime contractors engaged in military work during 1970s, defense contracts
represented less than 10 percent of total earnings.
284
Even after a decade of growth in
defense spending by 1980s, there was less than 20 percent revenue originated from
JDA’s defense contracts.
285
In other words, no major Japanese corporations are
primarily defense-oriented. In 2000, the aerospace business, on average, accounted
for only 12 percent of their total sales.
286
Major players in Japan's aircraft industry
are mainly involved in strategic or profit-making businesses, such as industrial
machinery, shipbuilding, electrical machinery, robotics, and automobiles.
And the last major problem of Japan’s aircraft industry is the overemphasis
of dual-use technology. Both the government and the industry have considered dual-

283
SJAC was comprised of 144 member companies in 2006 representing all major players including
manufacturers, parts suppliers and trading firms: Mitsubishi Heavy Industries (MHI); Kawasaki
Heavy Industries (KHI); Fuji Heavy Industries (FHI); Ishikawajima-Harima Heavy Industries (IHI);
ShinMaywa Industries; Japan Aircraft Manufacturing (Nippi); Kayaba Industry; Koito
Manufacturing; Hitachi Kokusai Electric; Shimadzu; Sumitomo Precision Products; Jamco; Showa
Aircraft Industry; Shinko Electric; Daikin Industries; Teijin Seiki; Tokyo Aircraft Instrument;
Toshiba; Toyo Communication Equipment; Tokimec; Japan Aviation Electronics Industry; NEC;
Fujiwara; Mitsubishi Electric; Mitsubishi Precision; Yokogawa Electric; Yokogawa Denshikiki; and
Yokohama Rubber.

284
METI’s 2003 report on the Overview of Japan’s Defense Industry Production.

285
Ibid.

286
Ibid.

315
use technology as the only and best solution to concentrate on economic
development and maintain sufficient military capability simultaneously under
Japan’s postwar weak military market arrangements. For instance, in early 1970s,
Keidanren had concluded that commercial technology is a more feasible and vibrant
source and making greater financial sense for private producers to develop
weaponries advancement than military unique technology under the weak military
market structure. As such, Japanese aircraft makers had to manage a smooth
conjunction of their own commercial technology researches and the government’s
defense projects toward the same or similar direction with public financial support.
That, in turn, had opened the door for dual-use technology in both commercial and
military applications. I argue that the government’s industrial policy in providing
artificial market incentives, such as utilizing defense project as a mean to develop
dual-use technology, was the most important motivating factors for Japanese
producers to continue supporting the government’s expensive and inefficient military
aircraft projects. In addition, the government policies (mainly MITI and JDA) also
have been facilitating this dual-use technology development by providing generous
public investment in cultivating promising technologies already under development
in the private sector. The best example was the MELCO’s active phased-array radar
used in the FS-X fighter.
287

287
The U.S. General Accounting Office (GAO) National Security and International Affairs Division
(NSIAD)’s 1997 (GAO/NSIAD-97-76) report to the Congress on U.S.-Japan’s agreement on F-2
production.

316
Moreover, dual-use technology has also enabled private producers to build a
sizable business through exporting components embodying dual-use technology,
especially to the U.S., while adhering to the government’s restrictions on complete
weapon systems exports.
288
This strategy has allowed Japanese firms to skirt the ban
by exporting dual-use defense components on a company-to-company basis, which
largely circumventing the government’s policy on arms exports. Although the
government has further re-articulated policies to restrict dual-use component exports,
however, the industry has actively debated and challenged these policies by actual
actions from time to time. The industry leaders have long been arguing that military
export markets could bring about tremendous advantages for Japan. With a large
export market, they believe, Japan will have an efficient and low-cost domestic
military procurements, better economic and technological expansions, more healthy
industrial structure, higher international competitiveness of Japan’s industries, and
even a more independent foreign policy. For instance, Keidanren’s 1988
memorandum estimated that lifting the export ban would allow Japan to capture 30
percent of the global military aircraft market, 40 percent of military electronics, and
60 percent of naval ship construction. In addition, IHI had included arms in its
production list and asked the government to ease the ban for allowing its arms
exports several time during late 1980s and early 1990s. And in 1995, Keidanren also

288
Orit Frenkel. 1984. Flying High: A case study of Japanese industrial policy, Journal of Policy
Analysis and Management, Vol. 3, No. 3. (Spring, 1984), pp. 406-420.

317
released a public statement to highlight the importance of having a healthy defense
industry and suggest the government to reconsider the military export restrictions.
In comparison, the defense industries of the U.S. and Europe have been a
continuing source of technological spinoffs for their respective commercial aviation
industries. Richard Aboulafia from Teal Group, a professional consultation company
specializes in global aerospace industry, points out that the U.S. aircraft industry has
some advantages over other global competitors.
289
For instance, the government’s
large military budgets function as a providing ground for technological innovation
and new manufacturing processes, which increase the competitiveness of
commercial aircraft sector. Another main advantage is the large domestic market for
both airlines and aircraft makers. He points out that approximately 45 percent of the
world’s fleet of large civil airliners is operated by U.S. airlines.
290
Thus, he argues,
for the Japanese aircraft industry to become efficient, it has to depend on scale of
economies through arms export. In addition, Japan's decreasing military procurement
budget from the 1990s has further led more industry representatives and generated
more pressure to ask the government to relax its ban on exporting military systems
and components to the U.S. Nevertheless, dual-use technology has become the very
core element of Japan’s overall industrial structure in both defense related industry
as well as to the entire Japanese economy under the structural constrains from the
self-imposed weak military market structure. However, this strategy has seriously

289
Richard Aboulafia. Japan’s Military Aircraft Slump, Aerospace America, August 2006.

290
Ibid.

318
limited and weakened Japan’s ability to develop world class aircrafts (both military
and civil) and an indigenous aircraft industry.

4.3.3 International Environment in 1990s
On the other hand, with the long-term unbalanced technology flow between
the U.S. and Japan as well as the increasing fierce competition of global aircraft
market, three major changes in 1990s have given Japan new directions and
opportunities. At the same time, they have forced Japan to adopt new strategy in
developing its aircraft industry for the 21
st
century.
The first change is the U.S. policy shift in technology transfer to Japan. In the
past, the military benefits had justified the economic implications of generous
American military aircraft technology transfer to Japan. However, the downturn of
the U.S. economy in the 1980s, and the long-term unbalanced trade and technology
exchange had casted doubts toward the value of these programs to the U.S. In most
American policymakers’ eyes, the cooperative programs coupled with indigenous
efforts have turned Japan’s aircraft industry into a high degree of self-sufficiency and
posted great challenges to U.S. firms in the global market. Although Japan signed a
bilateral agreement in 1983 allowing the transfer of its military technology to the
U.S. on a case-by-case basis, however, Japanese industry lacks the incentives to
share technology with the U.S. as a competitor.
As a result, Japan’s 1988 FS-X project became the breaking point of the U.S.
policy shift in technology transfer to Japan. More specifically, the U.S.-demanded

319
1989 revision of FS-X agreement had emphasized two technological focuses: free
and automatic technology flow-back, and the limitation on engine technology
transfer. These focuses became the major disputes between Japan and the U.S. and
left resentment in both sides. Under the revised agreement, the U.S. would receive
free and automatic flow-back of U.S. F-16 derived technology from the project while
access to non-derived (Japan indigenous) technology. However, this request became
a major dispute in classifying derived and non-derived technologies, as well as
mutual dissatisfaction about Japan’s pace and willingness of technology transfer.
291

According to the same report, under the U.S. government’s restrictions on transfer
critical engine technologies, IHI’s engine licensed production rate of GE’s F110-129
engine (for FS-X) was only approximately 60 percent on the average through the
production period.
292
As such, Japan did not gain significant new capability in engine
production and the engine technology released for this project was roughly
equivalent to the previous F-15J licensed production.
293
In sum, the bitter FS-X
experience and associated difficulties have made the U.S. rethink its technology
transfer policy and push Japan toward greater reliance on domestic capabilities
aiming at an indigenous aircraft industry and enhancing negotiating leverage vis-à-
vis the U.S. and other potential foreign partners.

291
The U.S. General Accounting Office (GAO) National Security and International Affairs Division
(NSIAD)’s 1997 (GAO/NSIAD-97-76) report to the Congress on U.S.-Japan’s agreement on F-2
production.

292
Ibid.

293
Ibid.

320
The second change is the shift of U.S. foreign policy after Cold War, which
includes the new military deployment plan in Asia, strategy to incorporate China,
and soft attitude in dealing with North Korea. This has further pushed Japan to move
away from depending on the U.S. security umbrella and aimed to develop more
independent military capabilities. At the same time, these changes have also created
more domestic pressure and challenges to Japan’s self-imposed weak military market
structure, since the U.S.-Japan Security Treaty is one of the two main pillars (the
other one is Yoshida doctrine) of this postwar institutional arrangement.
The third major change is the increasing fierce competition of global aircraft
industry and the ICP strategy becoming the mainstream of major aircraft
development.
294
With the increasing air trafficking and fierce competition in the
1990s, aircraft makers were under more pressure to continue making their products
more affordable and competitive. As a result, international collaboration project
(ICP) for sharing R&D costs has become a mainstream method for major aircraft
development programs. Under ICP method, major subcontractors agree to develop
main components such as engine and avionics at their own expense in exchange with
program-long supplier status.
295
And the system integrator can concentrate on
design, system integration, and marketing activities to improve the overall quality of

294
Kimura Seishi. 2007. The Challenges of Late Industrialization: The Global Economy and the
Japanese Commercial Aircraft Industry. New York: Palgrave Macmillan.

295
Ibid.

321
aircraft.
296
However, as the system integrator has to outsource about 50 to 60 percent
of the work share, major subcontractors will need to have more R&D capabilities,
and that in turn might spur new alignments of global aircraft industry.
297
Thus, this
development has provided Japan the best opportunity to leverage its comparative
advantages, namely generous public investment, strong manufacturing capability,
strong aircraft related technologies, and long-term subcontractor experience, to play
as the decisive third party, especially in the fierce competition between Airbus and
Boeing. Nevertheless, the dynamic global aircraft market and the ICP strategy have
provided new opportunity for Japan to cultivate its indigenous aircraft related
technology and capability.
In the early 1990s, Japan was expected to be on the fast track toward building
a strong aircraft industry with its strong comparative advantages in generous public
investment, strong manufacturing sector and related technologies. However, the
interplay of Japan’s early development strategy and the major reinforced factors on
the two major market imperfections has limited the development of Japan’s aircraft
industry. It is characterized by weak technological competences, heavy reliance on
external technology sources and on domestic military procurement, side-job nature
of aircraft related production, and overemphasis on dual-use technology. As a result,
the repeated failures of major indigenous projects, piecemeal civil aircraft sector, and
inefficient military aircraft industry altogether have casted strong doubts to the

296
Ibid.

297
Ibid.

322
government’s long-term industrial policy in simulating artificial market incentives
under the self-imposed weak military market structure.
Japan has demonstrated economically and politically that it is willing to
support a costly yet inefficient aircraft industry without a healthy military market
structure for survival. The long-term heavy reliance on foreign technology has made
Japan surrender the strategic activeness at first place in developing its aircraft
industry. The F-2 case has proved the failure of Japan’s overall strategy in the face of
U.S. policy shift in considering technology transfer from an economic point of view.
On the other hand, with fierce competition of global aircraft industry, ICP has
become the mainstream strategy in developing new aircrafts. It opened another door
for Japan to revive its aircraft industry by leveraging its strong manufacturing
capability, long-term subcontractor experience, generous public investment, and
advanced related technologies, as a decisive third party. In addition, the U.S. policy
shifts in technology transfer, military deployment, and foreign policy have further
driven the Japanese government to initiate more serious indigenous projects for an
independent aircraft industry. Thus, the government, through its industrial policy,
has been simulating more artificial markets for the goal.

323
4.4 JAPAN’S 21
st
CENTURY AIRCRAFT INDUSTRY DEVELOPMENT
STRATEGY

4.4.1 Introduction
The repeated failures of major indigenous projects, expensive and inefficient
military aircraft procurements, piecemeal civil aircraft sector, and all the major
problems, have forced the government to restructure its overall strategy. It has
initiated serious indigenous projects to concentrate on domestic R&D for an
independent aircraft industry in the 21
st
century, especially in the face of the U.S.
policy shifts in technology transfer, military deployment in Asia, and foreign policy.
On the other hand, the mainstream ICP method has given Japan new opportunities to
leverage its comparative advantages to play as a decisive third party in the fierce
global competition, especially between Airbus and Boeing. The government’s
current industrial policy aims to simulate artificial markets (including military
markets) by diverse ICP projects, indigenous projects of both military and civil
aircraft, and licensed production projects (only when necessary).
Specifically, there are three tracks of current industrial policy in correcting
the major problems embedded in the weak military market structure. First, Japan has
been diversifying its aircraft industry by deepening diverse ICP projects, such as
large-scale jetliners with Boeing (B787) and Airbus (A380), regional jets, and engine
technology. At the same time, Japan has been promoting indigenous development
through six major national projects involving almost all major domestic

324
manufacturers. And third, Japan still keeps licensed producing U.S. military aircrafts
as external technology sources, at a lesser degree and only when necessary, in order
to avoid overreliance on the U.S.
From past experience, the government has recognized the importance of an
active military strategy and a healthy military market in guiding and supporting its
aircraft industry. Thus, in addition to all the micro-level measures, the government
has been gradually transforming Japan’s overall military market structure and the
industrial structure of the aircraft industry. And the aircraft industry probably will
benefit the most from the government’s recent decisions in the macro-level. For
instance, the government has relaxed the limitations on the use of defense force by
the 1992 Peacekeeping Operation Act (PKO Act), the 1997 U.S.-Japan Guidelines
for Defense Cooperation, and the 2004 defense force deployment in Iraq. It also aims
to consolidate defense strategy and R&D activities by the 2007 establishment of
MOD, and allow space development for military purposes by the 2008 revision of
the Space Basic Law. Moreover, the government might partially lift the decade-long
arms export ban to create huge market demand in the end of 2009.

4.4.2 Diversification Development of ICP Projects
Japan has been diversifying its aircraft industry development through diverse
ICP projects by leveraging its strong manufacturing and mass production
capabilities, long-term reliable supplier-ship, sophisticated aircraft related
technology, and generous public investment. It plays as a third decisive player in

325
large-scale jetliners by Boeing (B787) and Airbus (A380), as well as in regional jets
and engine technology with various major international manufacturers. All these
efforts have aimed to cultivate domestic technological competences in
conceptualization and design, market-related activities, core technologies, and
system integration, in order to achieve its indigenous goal.

4.4.2.1 Airbus A380 ICP Project
Airbus considers that Boeing’s close production relationship with Japanese
aircraft manufacturers is the key for Boeing’s long-term domination in Japan’s
airline market.
298
Therefore, in May 2001, Airbus started a Japanese subsidiary
aiming to win 50 percent of Japanese market over the next 20 years. Since then,
Airbus aggressively has been establishing partnerships with Japanese manufacturers,
such as MHI, FHI, Mitsubishi Rayon, ShinMaywa, Toray, Toho Tenax, JAMCO,
Sumitomo Metal, Nippi, Showa Aircraft Industry, Matsushita Avionics system,
Casio, and Bridgestone, to manufacture parts and components for its A380 super
jumbo jet in order to increase its market share and presence in Japan. As of 2004,
twenty one Japanese aircraft manufacturers have participated in the development of
A380: MHI manufactures the front and aft lower cargo door; FHI produces the
vertical tail-plane (VTP) leading and trailing edges, as well as VTP tip and fairings;
Nippi makes the horizontal tail-plane tips; ShinMaywa works on the wing root fillet

298
Kimura Seishi. 2007. The Challenges of Late Industrialization: The Global Economy and the
Japanese Commercial Aircraft Industry. New York: Palgrave Macmillan.

326
fairing and the wing ramp surfaces; Mitsubishi Rayon supplys composite materials,
Casio provides cockpit TFT panel, and Bridgestone supplys tires (Figure 4-13).
299

In general, this large-scale ICP project has created a win-win situation for
both Airbus and Japan to mutually benefit from collaboration.
300
For Airbus, it has
acquired cheap and reliable components to lower R&D and production costs and to
increase its international competitiveness. More importantly, it has established initial
collaboration relationship with major Japanese aircraft manufacturers, especially
with MHI and FHI, although it failed to drag them to participate as major risk-
sharing partners. For Japan, this project has provided the best opportunity to
diversity its aircraft industry development by leveraging its comparative advantages
of strong manufacturing capabilities in airframe and related technologies such as
composite material and electronics. It also signals Japan’s new strategy in breaking
Boeing’s control growth by looking for more diverse sources of technology
upgrading. More importantly, it has increased its bargaining power with Boeing for
future collaboration.

299
SJAC 2009 Aerospace Industry in Japan report.

300
Kimura Seishi. 2007. The Challenges of Late Industrialization: The Global Economy and the
Japanese Commercial Aircraft Industry. New York: Palgrave Macmillan.

327
Figure 4-13: Japan’s Work Share in Airbus A380 Project

Source: SJAC, 2009

4.4.2.2 Boeing B787 ICP Project
Given Airbus’ repeated challenges and the increasing international
competitive landscape, Boeing had to attract more external capital investment to
share its B787 development and production risks as well as costs with major partners
in order to increase competitiveness, rather than developing and building lots of
components in house. And Japan does both.
301
Therefore, Boeing had to actively

301
Ibid.

328
seek further cooperation in developing, financing, and selling its B787 with its long-
term Japanese partners for obtaining Japan’s market share, cheap and reliable
components, and generous public investment. As a result, Boeing signed a
Memorandum of Agreement with JADC, MHI, KHI, and FHI in 2004, outlining key
terms and conditions of Japan’s participation in the development and production of
its B787. And in 2005, Boeing reached formal contracts and work agreements with
JADC in representing the three Japanese manufacturers on its B787 ICP project.
Japanese makers have obtained 35 percent of total work share (up from 21 percent of
B777) with MHI responsible for the main wing box; KHI providing the main landing
gear wheel, main wing fixed trailing edge, and parts for the forward fuselage section;
and FHI focusing on the center wing box and the integration of center wing box with
main landing gear wheel (Figure 4-14).
302

Moreover, as expected, the financial risks of Boeing’s B787 project were
further alleviated by Japan’s generous public investment. Japanese private
producers’ participation in this ICP project has been backed by METI’s $3 billion
success-condition low-interest loans from its International Aircraft Development
Fund (IADF). Thus, E.U. has protested to the World Trade Organization (WTO) on
Japan’s public financing to B787 ICP project as violating WTO agreement as well as
free-market principle, and at the same time placing Airbus at unfair competition

302
SJAC 2009 Aerospace Industry in Japan report.

329
position.
303
However, these protests are quite controversial in nature, since METI
had also poured public investment from IADF to support Japanese makers’
participation in V2500 engine ICP project involving Italy, Germany, and England.
And similarly, Boeing also has protested to the WTO on British, German, and
French governments’ $4 billion low-interest loans to support Airbus’ A380 R&D
activities.

Figure 4-14: Japan’s Work Share in Boeing 787 Project

Source: SJAC, 2009

303
E.U. also offered the same protest to WTO on the U.S. government’s public subsidies to the R&D
activities of Boeing’s B787 project.

330
Currently, the fierce competition between Airbus and Boeing still continues
as Airbus launched its newly designed A350XWB wide-body jetliner in 2005 to
compete with Boeing’s B787 (Figure 4-15). According to Airbus, the new A350’s
operation costs (per seat) will be 7 percent lower than B787 and 25 percent less than
B777-300ER. It is with wider seat accommodation and more flexible seat
arrangement for airlines. The first delivery of A350 is scheduled in 2013 and Airbus
estimates that A350 will dominate 41 percent of market share with a predicted total
production of 5,700 units in the next 20 years.
304

Figure 4-15: Airbus A350

Source: Airbus

304
The total R&D cost for A350 is estimated around 10 billion Euro, and as of 2008, Airbus has
around 100 firm orders on its A350, according to Airbus.

331
4.4.2.3 Next-Generation Supersonic Transport (SST) and Other ICP Projects
In 2005, with strong support from METI and MEXT, SJAC reached the
Frame Agreement on the Development of Next-Generation Supersonic Transport
Cooperation Program with the French Aerospace Industries Association (GIFAS) to
jointly conduct research and development of SST, with active participation from
JAXA, JADC, and ESPR. Moreover, this collaboration project involves major
aerospace manufacturers in both countries. European Aeronautic Defense and Space
Co., and the Safran Group represent France, and MHI, KHI, FHI, and IHI from
Japan.
305
The goal of this SST project is to develop a prototype SST in 2020 with
around 300 seats and can fly at Mach 2 (twice the speed of sound, from Tokyo to
Los Angeles in about four hours) to fundamentally change and dominate the future
air-traveling style and create new market at the early 21
st
century (Figure 4-16).
Thus, the collaboration of both countries focuses on market research, environment
effect research, and major R&D activities for SST related technologies such as
composite material airframe and structure, jet-engine noise reduction technology,
and supersonic propulsion system, to overcome the difficulties unique to supersonic
flight, especially high fuel consumption and jet-engine noise. In 2005, JAXA
successfully launched an experiment SST mockup (worth of 1.1 billion JPY) in

305
SJAC 2009 Aerospace Industry in Japan report.

332
Australia and the first mutual progress reports of research works were made at a
workshop held at Tokyo in 2006.
306

In addition to the above major ICP projects, with the increasing global market
demand of regional and business jets from 1990s, Japanese manufacturers have been
individually participating in various ICP projects with several foreign system
integrators and playing important role as risk-sharing partners.
307
In terms of
business jets, MHI has been participating in Bombardier’s Global Express since
1992, and FHI has been working with Raytheon on the Hawker Horizon project
since 1996. Moreover, KHI has been successfully engaging in Embraer’s ERJ
regional jet ICP project and taking charge of manufacturing the main wings from
1999.

Figure 4-16: Japan’s Next-Generation Supersonic Transport (Image)

Source: JAXA, 2008

306
Ibid.

307
Ibid.

333
In general, there are some reflections from Japan’s current efforts in these
ICP projects that can be summed up. First, the continuous fierce competition
between Airbus and Boeing will probably benefit Japan the most as a decisive third
party for its ultimate goal of becoming an independent system integrator in the near
future. On the one hand, Japan has 21 domestic firms participating in A380 ICP
project with a total work share of $0.65 billion as subcontractor, rather than risk-
sharing partner to avoid damaging its long-term relationship with Boeing.
308
On the
other hand, Japan decided to participate in Boeing’s B787 ICP project as major risk-
sharing partner and successfully obtained 35 percent of work share (centered on the
construction of the wings) in exchange of assuming a portion of the financial burden
to break Boeing’s long-term control strategy (20 percent work share limitation and
non-core components). In addition to production works, Japan was also granted to
join the upstream conceptualization and design as well as taking responsibilities in
marketing activities. In sum, The B787 ICP project marks a new milestone for
Japan’s aircraft industry development. And Japan’s comparative advantages will
continue to be critical to future competitiveness of Airbus, Boeing, and many other
system integrators in current dynamic global market. At the same time, they are
equally important to Japan’s future progress toward an indigenous aircraft industry,
if with fine strategy manipulation.

308
Ibid.

334
Second, it seems Japan has, again, placed its bet on Boeing with a rejection to
participate as a major partner in A380 project, the risk-sharing partnership in B787,
and METI’s $3 billion financial support. In addition to all that, in 2004 ANA has
further ordered 50 units of B787 (worth of $6 billion) and announced its future plan
of an all Boeing fleet.
309
Moreover, in the military aircraft sector, JDA also decided
to purchase Boeing’s B767 tankers and licensed produce the AH-64D Longbow
Apache combat helicopter. As a result, Boeing still dominates around 80 percent of
Japanese market in 2003 and Airbus has been losing rather than increasing market
share in Japan, despite recent efforts.
310
Although Japan has made firm support and
large contribution to the outstanding success of B787 project, Boeing’s attitude in
supporting Japan’s aircraft industry is highly uncertain, as it still views Japan as a
potential competitor.
311
Boeing’s hesitant attitude further reflects in its rejection to
become a major partner in Japan’s later indigenous commercial regional jet project,
the MRJ project. Third, there is a clear government role in promoting and supporting
Japan’s participation in various ICP projects. With decade-long development, the
Japanese private producers have established strong partnership with major foreign
system integrators, therefore leaving less room for the government intervention.

309
Nikkei Shinbun, June 19, 2008.

310
Ibid.

311
As of early 2009, Boeing has 850 firm orders of its B787, which makes it an outstanding success
and the fastest-sell aircraft ever in history, according to Boeing.

335
In addition, Japan is attempting to utilize its comparative advantages,
especially generous public investment as well as advanced environment and
composite material technologies, to create a brand new game by collaborating with
France in developing SST and supersonic-unique technologies. In fact, Japan’s
current move toward supersonic field might embroil extremely high risks, however,
it is a reasonable attempt to run away from current trap and the U.S. dominated
subsonic aircraft industry by combining its well-known strengths in composite
material and advanced environment technologies with the sophisticated aerospace
industry of France. They hope to dominate the supersonic technologies such as
supersonic propulsion system and noise reduction technology. While teaming up
with major domestic makers, this government-led project hopes to attract more
private participation and investment and to create some technological breakthroughs
and possible spillover to Japan’s aircraft industry. Again, it reflects Japanese
bureaucrats’ linear plan rational in guiding the development of Japan’s aircraft
industry.
Moreover, Japanese government is utilizing major ICP projects as artificial
market incentives to further attract private participation and investment, as well as
promoting domestic R&D activities in aircraft technologies. For example, the B787
ICP project has attracted FHI to spend 7 billion JPY in building a new composite
material factory in Handa City of Aichi for manufacturing the main wings of B787 in

336
2006.
312
And the same facility has also been producing composite material
components for JDA’s P-X and C-X airplanes. Meanwhile, the A380 and B787 ICP
projects have also successfully provided Japanese firms with opportunities to
actively participate in several engine ICP projects with major foreign manufacturers.
For instance with the decisions of Airbus to choose Rolls-Royce’s Trent1000 and the
Engine Alliance’s GP7200 engines to power its A380 and Boeing to select the same
Rolls-Royce Trent1000 and GE’s GEnx (GE Next-Generation) engines for the B787,
Japanese major makers have successfully entered these three major engine ICP
projects. More specifically, KHI and MHI have participated in Rolls-Royce’s
Trent1000 engine ICP, with KHI responsible for the middle pressure compressor
module and MHI in charge of the combustor module and the low pressure turbine
blades (Figure 4-17). On the other hand, IHI and KHI have also joined the Engine
Alliance’s GP7200 ICP project, while IHI has taken part in GE’s GEnx engine ICP
project for producing the low pressure turbine, the high pressure compressor, and the
mid-fan shaft, and MHI supplying the combustor case (Figure 4-17).
In sum, with government’s strong support and the industry’s active
engagement, Japanese industrial policy has tentatively simulated artificial markets
and market forces in directing domestic R&D, providing profit incentives, and
creating a sound circle of upgrading overall technological level of its aircraft
industry by utilizing generous public investment in various ICP projects. Currently,

312
SJAC 2008 Aerospace Industry in Japan report.

337
Japan is well positioned in taking advantages of this ICP trend and heading further
toward its indigenous goal with the government’s comprehensive supports.

Figure 4-17: TRENT1000 and GEnx Engines

Source: Rolls-Royce & GE

4.4.3 Indigenous Development of National Projects
METI (and JDA) has also been vigorously initiating and promoting six major
national projects (three civil and three military aircraft indigenous development
projects, Table 4-6). These projects function as main platforms to create various
artificial market incentives such as guiding private R&D direction, attracting
participation and investment, providing profit incentives and stable market demand

338
for almost all major domestic manufacturers. They also aim to improve and upgrade
the overall competitiveness of Japan’s aircraft industry. In the civil aircraft sector,
METI has launched three major national projects carried out by NEDO: the
Environment-Friendly High-Performance Small Aircraft project (current Mitsubishi
Regional Jet, MRJ project), the Environment-Friendly Small Aircraft Engine project,
and the Advanced Flight Control System project.

Table 4-6: Japan’s Current Major Indigenous Aircraft Development Projects

Project Period Budget Major
Partners
Detail Technological
Targets
METI/NEDO/MHI:
MRJ
2003-
2012
19.6/50 FHI, IHI,
JADC,
Sumitomo,
Nabtesco
To develop a mid-size
commercial regional
jet
Engine; Flight control
system; System
integration; Marketing
Conceptualization &
design;
METI/NEDO/IHI:
Small Jet Engine
2003-
2010
7.27 MHI, KHI,
JAEC,
ESPR
To develop a high
efficient small jet
engine
Engine
METI/NEDO:
Advanced Flight
Control System
2008-
2013
5 Unknown To develop an
advanced flight
control system
Avionics & Flight
control system

JDA/TRDI/MHI:
ATD-X “Shin-shin”
2002-
2014
9/49.9 IHI,
MELCO,
and other 35
makers
To develop a stealth
demonstrator/fighter
Engine; Stealth
technology; Radar;
System integration
JDA/TRDI/KHI:
P-X
2001-
2011
Patrol/antisubmarine
warfare airplane
Engine; Radar;
System integration
JDA/TRDI/KHI:
C-X
2001-
2012
345/260 MHI, IHI,
and other
about 200
makers
Cargo transport
airplane
System integration

Note: ESPR, Engineering Research Association for Supersonic Transport Propulsion System;
budget in billion JPY and amount funded as of 2008.

339
These projects function as major platforms to cultivate Japanese makers’
technological competences in conceptualization and design, core technologies in
engine and flight control system, marketing activity, and system integration, as well
as possible spillover to military aircrafts. After initiating these projects, METI and
NEDO then started to look for “capable” private makers to take over these projects
and supplied with necessary financial and technical supports as well as coordination
functions to allow private makers to exploit from these platforms. This strategy
clearly reflects the bureaucrats’ plan rational and prediction toward near future. It
also demonstrates the nature and function of industrial policy in generating artificial
market forces to counter possible market imperfections.
In addition, the same logic is also applied in the other three military aircraft
projects. As domestic military procurement is the most stable and largest market
demand for Japanese makers, with strong support from METI, JDA and TRDI have
launched three major indigenous military aircraft projects: the P-X large-scale
patrol/antisubmarine warfare airplane, C-X military cargo transport airplane, and the
ATD-X demonstration stealth fighter, to provide stable market demand in reviving
the military aircraft industry after the controversial F-2 project.
313

313
TRDI’s 2007 Mid- to Long-Term Defense Program.

340
4.4.3.1 Mitsubishi Regional Jet (MRJ) Project
The MRJ project is probably the most typical case to demonstrate METI’s
current strategy in promoting Japan’s civil aircraft industry. In 2003, METI launched
the R&D of Environment-Friendly, High-Performance Small Aircraft project (2003-
2007). It was carried out by NEDO with an initial goal to build a small-size (30-50
passenger corporate jet) prototype jet for commercial purposes, by utilizing generous
subsidies to attract private participation.
314
In 2006, MHI took over the project with
longer time span (2003-2011), larger goal (a 70-90 regional jet), and much more
R&D budget (150-180 billion JPY). It is with participation from several major
domestic makers such as FHI and JADC and support (both financial and
technological) from METI and NEDO. As a result, this project was renamed as the
Mitsubishi Regional Jet (MRJ) project and retreated from NEDO’s long-list
government-funded R&D projects. Thus, MRJ project became Japan’s first
nationally funded project for domestic development and production passenger
aircraft after YS-11. This project aims to develop a 70-90 seats regional aircraft
utilizing IT technologies and large scale composite materials to reduce weight and
improve fuel efficiency with the first flight planned for 2012 (Figure 4-18).
Mitsubishi Aircraft Corporation (an affiliate of MHI in charge of developing and
marketing MRJ) estimates the total R&D costs is about 150 to 180 billion JPY with

314
METI provided 2.56 billion JPY in 2004 and 4.09 billion JPY in 2005 through NEDO as R&D
subsidies to private firms, according to NEDO 2004 and 2005 annual reports.

341
50 percent from MHI, 10 percent from Toyota, and around 30 percent from METI’s
success condition-based project launch subsidies (Figure 4-19).
315

In addition, there is a strong group-oriented (or cooperative nature) of Japan’s
aircraft industry. For instance, on March 27, 2008, ANA decided to place 15 firm
orders with 10 options to support MHI in satisfying the requirements from both
METI and MHI’s board for formally launching the MRJ project. Thus, Japan has
finally embarked on a plan to transform its aerospace industry into a truly global
player to develop its own end products. Moreover, MRJ has further lined up top-
notch suppliers, signed up experienced consultants, and will benefit from the
experience that its shareholders bring to the table (Table 4-7). For example, Toyota
Motors as the leader of global automobile industry could provide its marketing
strategy, global service experience, and well-known mass production system to help
MRJ making its mark in the regional jet market. In addition, based on long-term
collaboration partnership from the B767, B777, and current B787, MHI also
concluded a support contract with Boeing in 2008, which offers consulting service
on MRJ’s development, marketing and customer support. Although METI and MHI
originally hoped that Boeing would sign on as a major partner in the project.

315
According to Mitsubishi Aircraft Corporation, METI has poured 1.3 billion JPY in 2007 and 18.3
billion JPY in 2008 to support the development of MRJ, with Bombardier and other major global
system developers closely monitoring the funding status of MRJ to see if it violating WTO rules.

342
Figure 4-18: Mitsubishi Regional Jet (Image)

Source: Mitsubishi Aircraft Corporation

Figure 4-19: MRJ Capital Investors

Source: Mitsubishi Aircraft Corporation

343
Table 4-7: MRJ Suppliers and Partners

Source: Mitsubishi Aircraft Corporation

Furthermore, MHI hopes to differentiate MRJ from major competitors and
smoothly enter the already-crowded regional jet market by harnessing many new
advanced technologies and incorporating large-scale composite materials (Figure 4-
20). For instance, MHI has picked four U.S. companies and two Japanese companies
to supply major components for MRJ. Pratt & Whitney's (P&W) supplies its Geared
Turbofan (GTF) engine, the PurePower PW1000G, rated at 17,000lb thrust on the
MRJ-90, and 15,000lb thrust on the MRJ-70 (Figure 4-21). The engine is low-

344
pressure system operates at high speeds for peak efficiency while the fan operates at
slower speed, that means fewer engine stages required, less airfoil count and engine
weight to achieve optimum efficiency, significant noise reduction, and less operating
cost. P&W claims that the GTF engine offering more than 12 percent lower fuel burn
and a 50 percent cut in noise than conventional ones.

Figure 4-20: Advanced Technologies Applied in MRJ

Source: Mitsubishi Aircraft Corporation

345
Figure 4-21: P&W PurePower PW1000G Engine

Source: P&W

On the other hand, Rockwell Collins provides primary fly-by-wire flight
control computers (the Pro Line Fusion avionics), pilot controls system (including
the control wheels, columns, pedals, associated feel systems and pedestal controls)
and horizontal stabilizer trim system for the MRJ (Figure 4-22). Parker Aerospace
supplies hydraulic system; Hamilton Sundstrand Corp., provides electrical power, air
management systems, and an auxiliary power unit; Nabtesco Corp. is working with
Rockwell Collins on the flight control system; and Sumitomo Precision Products Co.
Ltd, is producing landing gear.

346
Figure 4-22: MRJ’s Flight Control System from Rockwell Collins (Image)

Source: Mitsubishi Aircraft Corporation

In addition, MRJ is the first regional jet to adopt composite materials for its
airframe at a significant scale, which will be fabricated at MHI’s Oye factory where
the company also produces composite components for Boeing 787. By breakdown,
MRJ’s main structure will be 58 percent aluminium, 28 percent carbonfiber, 9
percent titanium, 4 percent steel and 1 percent glassfiber for stronger fuselage to deal
with high-frequency operation (Figure 4-23). As a result, MRJ will achieve 20
percent lower operating cost than current products due to advanced aerodynamics,
weight reduction, and a newly developed fuel-efficient engine. Maintenance cost will
be reduced by highly reliable systems and composite technology. MRJ will enter the
freezing design and joint-development phase in fall 2009. And MHI will be the lead

347
systems integrator to pull all its suppliers and work together in its Komaki factory
where the final assembly will take place. And there will be six versions of MRJ
using two different fuselage lengths, the MRJ 70 (70-80 seats) and the MRJ 90 (86-
96) with cost around 3-4 billion JPY per plane (Table 4-8 & Figure 4-24). Ground
tests and first flight are scheduled in 2011 and certification is likely to take place in
2013.

Figure 4-23: MRJ Materials Breakdown

Source: Mitsubishi Aircraft Corporation

348

Table 4-8: Specifications of MRJ 90 & 70

MRJ90STD MRJ90ER MRJ90LR
Passengers 86-96
External Dimensions: L/W/H m(ft) 36.0/29.7/10.0 (118.0/97.6/32.7)
Engine Thrust kN (lb) 75.6 (17,000) times 2
Maximum Takeoff Weight kg(lb) 39,600(87,300) 41,450(91,400) 42,800(94,400)
Maximum Landing Weight kg(lb) 38,500 (84,900)
Range (Full Passenger Payload) km(nm) 1,610(870) 2,590(1,400) 3,280(1,770)
Cruise Mach Number/NMO M0.78/M0.82
Takeoff field length (MTOW, SL, ISA) m(ft) 1,460(4,790) 1,590(5,220) 1,690(5,540)
Landing field length (MLW, Dry) 1,450(4,760)
MRJ70STD MRJ70ER MRJ70LR
Passengers 70-80
External Dimensions: L/W/H m(ft) 33.6/29.7/10.0 (110.2/97.6/32.7)
Engine Thrust kN (lb) 66.7 (15,000) ! 2
Maximum Takeoff Weight kg(lb) 36,850(81,200) 38,400(84,700) 40,200(88,600)
Maximum Landing Weight kg(lb) 36,200(79,800)
Range (Full Passenger Payload) km(nm) 1,480(800) 2,350(1,270) 3,330 (1,800)
Cruise Mach Number/NMO M0.78/M0.82
Takeoff field length (MTOW, SL, ISA) m(ft) 1,390(4,560) 1,500(4,920) 1,650(5,410)
Landing field length (MLW, Dry) 1,390(4,560)

Source: Mitsubishi Aircraft Corporation

349
Figure 4-24: MRJ Family General Arrangement

Source: Mitsubishi Aircraft Corporation

MHI is hoping to get a 20 percent market share of about 5,000 regional jets
expected to be in demand from 2015 to 2035.
316
MHI’s main target markets are
North America, Europe, Japan, and with interests in East Asia and Middle East. Big
orders could come from ANA and Japan Airlines (JAL), which are likely to add
regional jets after an expansion of Tokyo’s Haneda International Airport around end
of 2009. For now, Mitsubishi has only 15 firm orders and 10 options (estimated at 60
billion JPY) from ANA to replace some of its Boeing 737-500s and JAL could come
on board later. JAL said in a public media interview that the company is studying the

316
Mitsubishi Aircraft Corporation News. No. 9. (March 17, 2009).

350
aircraft seriously since it is a significant national project for the development of
Japan’s aviation industry. At the same time, Vietnam Airlines is considering a
proposal from Mitsubishi for up to 20 orders, while pushing to make the decision
contingent on an agreement to produce 30 percent of the jet in Vietnam.
In general, there are five main rationales that METI decided to support and
fund MRJ project.
317
First, METI predicted the overall size of global market for 60-
99 seat regional jets will expand rapidly to more than 5,000 units in 2025 (Figure 4-
25).

Figure 4-25: Market Estimation of 60-99 Seats Regional Jets, 1986-2025

Source: METI

317
Concluded from my 2007 and 2008 interviews with METI and NEDO.

351
Second is to position Japan as a legitimate player in a strategically important
industry. Although profit levels for commercial aircraft programs rarely exceed 10
percent, METI believes that domestic production of aircraft is very important to
national security and upgrading industries. A regional jet involves over three million
kinds of parts and materials, production/manufacturing system and technologies, and
related high technologies. Third, MRJ can function as a platform for Japanese
manufacturers to exploit and develop conceptualization, market-related activities,
and system integration capabilities in order to upgrade from subcontractor status.
Moreover, the development of regional jet can increase Japan’s bargaining power
with its various ICP partners such as Bombardier, Embraer, and especially with
Boeing, for more work-share and technology transfer while not double-crossing
Boeing’s large-scale aircraft market.
The last reason is to consolidate the problematic and collapsing military
aircraft business for the industry. METI believes that those commercial projects will
help Japanese industry to overcome falling revenues from military aircraft
business.
318
It believes that those commercial aircraft projects can create
technological spillovers to other industries, including the military sector. As Nobuo
Toda, President of Mitsubishi Aircraft Corporation, said, “MRJ is not just meant to

318
Concluded form my participations in METI’s Industrial Structure Shingikai Sub-meeting of
Aerospace Industry on April 25, May 24, June 13, and July 31, 2006.

352
be a growth market for MHI, it is also important for the Japanese economy. This is
not just a Mitsubishi program, it is a Japanese program.”
319

Therefore, in addition to all the generous R&D subsidies and success-
condition loans in supporting the development of MRJ, METI and NEDO have
launched two other national R&D projects, the small aircraft engine and advanced
flight control system, targeting two core aircraft technologies to provide further
technological assistance to MRJ by incorporating more private participation, and
again, with public subsidies. First, METI/NEDO’s Environment Friendly Small
Aircraft Engine Project (2003-2010) has aimed to jointly develop a small-size
aircraft engine with major private manufacturers such as MHI, IHI, KHI, JAEC, and
ESPR.
320
This project has incorporated Japan’s advanced environment technology in
creating a highly-efficient, environment-friendly, and extremely cost-effective next-
generation engine to largely reduce operation costs in future commercial operation
(Figure 4-26). In 2008, METI further launched the Advanced Flight Control System
Project (2008-2013) carried out by NEDO. It aims to integrate Japan’s sophisticated
electronics technology to develop a lightweight and easy-flight-control advanced
flight control system. In addition, this project also provides public subsidies to attract
private participation to develop an actual-scale demonstration (Figure 4-27).
321

319
Nikkei Shinbun, March 31, 2008.

320
METI’s subsidies to this project is 7.27 billion JPY as of 2008: 1.11 billion in 2004; 1.71 billion in
2005; 1.81 billion in 2006; 2.06 billion in 2007; 0.6 billion in 2008, according to NEDO.

321
According to NEDO, the 2008 subsidies were around 5 billion JPY.

353
Figure 4-26: NEDO Environment-Friendly Small Aircraft Engine

Source: NEDO

Figure 4-27: NEDO Advanced Flight Control System (Image)

Source: NEDO

354
In comparison to Japan’s current ICP efforts, METI’s role is more dominated
in the indigenous development projects. It has been initiating public-subsidize
projects targeting the aircraft technologies that Japan needs at current stage and
passed to “capable” private manufacturers in order to attract private participation and
investment. In other words, METI has been utilizing its industrial policy to simulate
artificial markets in providing profit incentives and R&D direction to promote
Japan’s aircraft industry, based on bureaucrats’ market prediction and plan rational.
Thus, the MRJ project is out of bureaucrats’ future market prediction and linear plan
rational as the logical next step for Japan’s aircraft industry. METI and NEDO have
been providing generous public subsidies, teaming up with major domestic makers,
elaborating technology strategy, and successfully passing to MHI, in order to
develop Japan’s indigenous civil aircraft, although, without any sound market
strategy.
In addition, Japan’s ICP strategy and current indigenous projects are mutually
supplementary and have temporarily created a sound circle in realizing the goal of an
indigenous aircraft industry. In other words, Japan’s active participation in diverse
ICP projects has largely enhanced its overall aviation technologies, especially in
system integration and engine technology. In parallel, the recent aggressive
indigenous projects have further deepened these ICP achievements. At the same
time, they have increased Japan’s bargaining power in future ICP negotiation, and
made Japan well-position in heading toward an independent system developer and at
the same time an indispensable partner to the success of major aircraft development

355
projects. Third, Japan has been utilizing ICP-in-indigenous-project strategy to create
opportunities for its domestic makers to collaborate with major foreign
manufacturers and gain accesses to core technologies. By actively initiating
indigenous projects (such as MRJ project), Japan could obtain strategic activeness in
creating favorable conditions in attracting and selecting foreign partners to
collaborate and participate, in exchange of collaboration opportunities and accesses
to core technologies. For instance, IHI and Nabtesco have been allowed to
collaborate with P&W. Rockwell Collins, respectively, in MRJ project, and have
obtained accesses to their engine and flight control system technologies.
Moreover, the fundamental logics behind all these indigenous projects have
overly emphasized technological strategy, as Samuels’ “techno-nationalism”
predicts, rather than marketing strategy. While other countries are vigorously
diversifying development and marketing strategies in order to obtain more market
shares, Japan has been trying to distinguish its advanced technologies from other
competitors in order to break into the already crowded market. This has caused
strong doubts and high uncertainty toward the future of Japan’s indigenous projects,
especially in the face of its insignificant domestic market.
Japan’s attempt to enter the regional jet market is a logical progression since
the regional jet market is the fastest growing sector and accounts for more than 70
percent of global commercial jet market.
322
However, the entry barrier of regional jet

322
Aerospace America, February 2008.

356
market is extremely high with the established players’ advantages of strong customer
bases, well-connected marketing channels, sound financial foundation, and extensive
service networks (Figure 4-28). There has been only one new player, Brazil’s
Embraer, successfully breaking into the market in the past decades. Thus, Japan is
unable to compete with current dominating players, such as Bombardier and
Embraer in reputation, marketing, and global service network. At the same time, it
faces daunting challenges from Russia and China with their promising domestic
markets and prices.

Figure 4-28: Market Shares of Major Regional Aircraft Manufacturers, 1994-2016

Source: Aerospace America, February 2008

357
Japan also has to face fierce competition and challenge from Russia and
China with their Superjet and ARJ21, respectively. Russia and China have strong
comparative advantages in design, R&D, system integration, and most importantly,
the promising domestic markets (Table 4-9). Currently, their new regional jets have
received more than 200 firm orders (China has 183 domestic orders), with China
successfully obtained global leasing support and 25 firm orders from GE’s
Commercial Aviation Services (GECAS).
323
In contrast, MHI has only received 25
domestic orders from ANA and has been struggling to reach the faraway breakeven
point of 350 orders for its MRJ.
324
Thus, in order to attract overseas orders, MHI has
established the Mitsubishi Aircraft Corporation America in 2008 to promote
marketing activities in North America. It has subcontracted to Taiwan’s Aerospace
Industrial Development Corporation (AIDC) in 2009 for design and manufacture
slats, flaps, belly fairings, rudders, and elevators for its MRJ, for possible orders
from China Airlines and EVA Airlines in the new opening up of China-Taiwan
cross-strait flights.
325
It also has been considering Vietnam’s offer of 20 orders in
exchange of outsourcing.

323
GE supplies its CF34-10A turbofan engines to power China’s ARJ21.

324
Mitsubishi Aircraft Corporation News. No.1 (April 30, 2008)

325
Mitsubishi Aircraft Corporation News. No.7 (January 22, 2009)

358
Table 4-9: MRJ’s Major Competitors (Price in million USD)

MHI
MRJ70/ 90
Bombardier
CRJ
Embraer
E-Jets
Sukhoi
Superjet100
ACAC
ARJ21
Seats 70-96 86 98 78-98 78-105
Price 31.5-42.1 24-39.7 27.4-34.9 27.8 20
Orders 25 485 876 233 208
Delivery 2013 2003 2005 2008 2009
Nation Japan Canada Brazil Russia China

Note: ACAC, AVIC-I Commercial Aircraft Co., Ltd.; the price of MRJ is calculated at 1USD: 95JPY.

In sum, the success of Japan’s MRJ project depends on three major factors.
The first factor is the support from international leasing companies. It might be a
challenging task for Japan as a new player. Mitsubishi is currently in talks with
International Lease Finance Corporation (ILFC) in order to drag this leasing giant on
board and make a deal. Second, Boeing’s support in marketing activities and after-
sell service network is also critical. However, its true attitude is highly uncertain.
Third, the project also needs the marketing and leasing supports from Japan’s three
major trading houses, Mitsubishi Corporation, Sumitomo Corporation, and Mitsui
Corporation, to promote MRJ globally.
326

326
According to the Mitsubishi Aircraft Corporation, the three trading houses are also MRJ’s
shareholders. Mitsubishi Corporation owns 10 percent share. Sumitomo Corporation has 5 percent,
and Mitsui Corporation holds 5 percent, as of January 2009.

359
4.4.3.2 TRDI/MHI ATD-X Project
Furthermore, in parallel with the civil aircraft efforts, JDA and TRDI
launched the Advanced Technology Demonstrator-X (ATD-X) Project (or known as
“Shin-shin”, which means one’s mind) in 2002, as an attempt to indigenously
develop Japan’s 5
th
generation stealth fighter, under JDA’s Future Weapon System
Technologies of the Mid- to Long-term Defense Program (Table 3-20). TRDI
selected MHI as the prime contractor of this project aiming to self-validate Japan’s
indigenous aircraft technologies in developing its 5
th
generation stealth fighter with
three main technological focuses: engine (2000-2008), smart skin and radar (stealth
material and technology, 2006-2009), system integration and prototype development
(2002-2013, with first test flight scheduled in 2014), for research purposes and
Japan’s future weapons system.
327
In terms of prototype and smart skin development,
MHI has developed a full-scale model with integrated smart skin in 2005 and sent to
France to test its stealth characteristics (Figure 4-29).

327
From my field research in TRDI’s 2008 Defense Technology Symposium.

360
Figure 4-29: Full Scale Model of ATD-X

Source: TRDI, 2008

This is a highly unusual move in Japan’s military aircraft history and is also a
result of the unhappy experience from F-2 project. It also indicates TRDI might
pursue French technical assistance and cooperation for the project. However, the
overall design and concept of Japan’s ATD-X has largely resembled (or copy, in
plain) Lockheed Martin’s F-22 and F-35. It features similar tailed-delta and twin-
engine with 3D thrust vectoring and active phased array radar. Moreover, ATD-X
will be powered by a pair of IHI’s XF5-1 afterburning, 3D thrust vectoring engines
derived from IHI’s XF7 engine used on KHI’s P-X large-scale patrol airplane

361
(Figure 4-30).
328
In addition, TRDI and IHI together have developed an axis-
symmetric thrust vectoring nozzle to allow higher maneuverability for ATD-X
fighter. IHI claims that the new XF5-1 turbofan engine has an equal thrust-to-weight
ratio to French M88 turbofan engine (for Dassault Rafale fighter) and enabling ATD-
X to supersonic flight without afterburners. This major technological breakthrough
will mark a major advance for Japan’s military aircraft engine technology.

Figure 4-30: IHI’s XF5-1 Turbofan Engine

Source: TRDI, 2008

In addition, another major technological feature on the ATD-X is the active
phased array radar which has been developing by Mitsubishi Electronics Corporation
(MELCO). TRDI claims that this new radar will have spectrum agility between C
and Ku Bands, which is highly similar to Northrop Grumman’s AN/APG-81 Active

328
Ibid.

362
Electronically Scanned Array (AESA) radar used on Lockheed Martin’s F-35 fighter.
It provides a defense against-jamming capability while at the same time allowing
counter jamming by combining search and tracking, communication functions,
electromagnetic countermeasures (ECM), and electronic sensory measures (ESM).
Moreover, according to TRDI officials, the radar will have attack functions such as
high-power microwave.
329
In fact, the current active phased array radar development
for ATD-X is picking up from Japan’s early efforts in its F-2 fighter, which equipped
with the world’s first active phased array radar in service.
330

In sum, this indigenous 5
th
generation fighter project has two main
motives.
331
First, the project aims to self-validate indigenous technologies in stealth,
advanced maneuvering, engine, radar, and fly-by-light control system. Japan also
hopes to reduce technological dependence on American military aircraft technology
and to counter similar moves by Russia and China.
332
In addition, it aims to increase
Japan’s bargaining power in purchasing the U.S. F-22 Raptor fighter to replace its
aging F-4EJ fleet.
333
Nevertheless, the ATD-X project serves as a mean to increase

329
From my 2008 interview with TRDI officials in 2008 Defense Technology Symposium in Tokyo.

330
Ibid.

331
Concluded from my 2008 interviews with TRDI and METI officials.

332
Russia and China have been developing their 5
th
generation stealth fighters, the PAK-FA and J-14,
respectively, according to my November 11, 2008, interview with TRDI officials in 2008 Defense
Technology Symposium in Tokyo.

333
Japan’s request on purchasing the F-22 has been repeatedly rejected by the U.S., under economic
considerations of technology transfer. MOD is also considering Lockheed Martin’s F-35 Lightning II
and Eurofighter Typhoon stealth fighter as possible alternatives, although they do not completely
satisfy Japan’s specific needs.

363
Japan’s bargaining power in direct purchasing foreign off-the-shelf fighter, although
with a highly uncertain future of becoming a serious endeavor due to the domestic
debates regarding Japan’s future strategy in developing its aircraft industry.

4.4.3.3 The P-X and C-X Projects
In terms of large-scale military airplane, JDA decided to replace its current P-
3C maritime patrol/antisubmarine warfare airplane and the C-1 cargo transport
airplane by domestic development of the next-generation P-X and C-X (2002-2012)
in 2001, with a total R&D budget of 260 billion JPY.
334
JDA further selected KHI as
the prime contractor to develop these two models which parallel its long-term
experience and capability in licensed producing 107 units of Lockheed Martin P-
3Cs. In addition, these two projects were the first time in 37 years for Japan to
indigenously develop and produce large scale airplane. It involves more than 200
domestic manufacturers including MHI and IHI, and over 1,300 engineers. The
Japanese military wants to buy 80 units of P-Xs and 44 units of C-Xs, with the P-X
entering service in 2011 and the C-X in 2012. It is expected that P-X will assist
Japan’s defensive power through its ability to gather surveillance information, while
the C-X will serve as the principal means of air transport for a rapid reaction force to
regional contingencies. KHI completed the design planning phase of C-X and P-X in
November 2003 and entered prototype development stage (2003-2007). And the

334
According to TRDI, the total cost of C-X and P-C projects was around 345 billion JPY as of 2007.

364
rollouts of the prototypes were done in July 2007 with the first prototype P-X
succeeded in the first flight in September 2007 in JMSDF’s Kifu airport (Figure 4-31
& 4-32).
335

The P-X and C-X designs were originally independent, JDA later decided to
create as many common use components as possible in airframe, accessories and
avionics. However, given the widely divergent missions for the two airplanes, the
early hopes for a large degree of commonality have not greatly achieved. The C-X
has a high wing with two GE’s CF6-80C2 turbofan engines, with a contract value of
approximately $1 billion over the estimated 30-year life of the program. The P-X has
a low wing with four smaller XF-7 turbofan engines newly developed by IHI and
other domestic manufacturers. The fuselages of C-X and P-X are also completely
different with P-X relying on a new maritime patrol combat system. P-X also has an
artificial intelligence system to assist tactical coordinator operation and an advanced
combat direction system to formulate the best flight course to attack submarines. It is
also the first production aircraft in the world to equip with fly-by-light in order to
decrease electromagnetic disturbances to its sensors. In addition, P-X also equips
advanced phased array radar, magnetic anomaly detector, and Infrared/Light
detection systems to detect submarines and small vessels. It also has a bomb bay for
anti-submarine weapons, as well as eight external pylons

to carry air-to-surface
missile or bombs. In the end of prototype development stage, the common

335
Yomiuri Shinbun, September 29, 2007.

365
components shared by both C-X and P-X are cockpit windows, outer wing, and
horizontal stabilizer. Other internal shared parts include auxiliary power unit, cockpit
panel, flight control system, anti-collision light, and gear control unit. These
commonly shared components from this parallel development strategy have
decreased total R&D costs by about 25 billion JPY and will further lower unit costs
and operation costs in active service.
336

Figure 4-31: Japan’s P-X Patrol/Anti-Submarine Warfare Airplane

Source: TRDI

336
From my November 11, 2008, interview with TRDI officials in 2008 Defense Technology
Symposium in Tokyo.

366
Figure 4-32: Japan’s C-X Cargo Transport Airplane

Source: TRDI

In sum, JDA could have chosen cheaper and easier replacement of the P-3C
and C-1 planes by simple direct purchase from foreign off-the-shelf systems such as
Boeing’s 737 Multi-mission Maritime Aircraft (MMA), Lockheed Martin’s C-130J,
Airbus’ A400M, or Boeing’s C-17. However, either direct purchase or licensed
production would largely decrease and weaken the role of Japanese manufacturers in
these two large-scale projects. It would again stir up already-intense domestic debate
regarding Japan’s future strategy in developing its aircraft industry. Thus, the
government decided to utilize these two projects to create artificial market incentives
to provide Japanese makers more market demand and R&D direction.

367
In fact, the controversial results of FS-X (F-2) project and the U.S. policy
shift in technology transfer to Japan have resulted in wide discussion and casted
strong doubts toward the government’s current strategy, especially toward military
aircraft sector. At the same time, it has generated tremendous pressure (from
Japanese industrialists, military personnel, and aircraft engineers) to challenge the
government’s defense policy and self-imposed weak military market arrangements.
As a result, METI and JDA’s decision of indigenous development of P-X and C-X
large-scale airplanes were considered as a major success by several Japanese
industrialists, military personnel, and aircraft engineers. Moreover, with the well-
established institutional arrangement for two-track technology flow between civil
and military aircraft sector, Japanese makers could further benefit more by utilizing
these two large-scale airplane projects as major platforms and sound foundation to
transform and develop large-scale airplanes for commercial purposes, under current
trend of a tightening defense budget.
337
For instance, with strong support from METI
and JDA, KHI has decided to establish a commercial aircraft division in 2012 for
launching a new large-scale commercial transport project by transforming its C-X
military cargo transport into commercial purposes.
338

337
TRDI has been establishing technology-exchange platforms and technological maps with various
public research organizations and major private aircraft manufacturers for better and faster utilization
of commercial off-the-shelf (COTS) technologies for defense purposes, in order to shorten R&D
period, reduce life-cycle costs, adopting advanced COTS technologies, and introduce higher-
performance equipments, under current trend of tightening defense budget.

338
Nikkei Shinbun, July 3, 2007.

368
The same emotion has also largely reflected in ATD-X project’s decision-
making process over the U.S. government’s repeated refuse in selling and
transferring F-22 and any related technologies (such as engine, radar, and stealth
technology) to Japan. Nikkei Shinbun’s month-long (December 2008) daily “Shin-
shin” special reports have best illustrated Japanese aircraft makers, military
personnel, and engineers’ complex attitude toward the U.S. and the current status of
Japan’s aircraft industry, namely admiration of American F-22 and F-35, resentment
and regret from F-2 project, glorious memory of Zero fighter, confidence and worry
of ATD-X project (for the government might decide to direct purchase foreign
system), and dissatisfaction with the current defense policy.
339
Moreover, the
domestic debates have further affected METI and JDA’s later decisions on the
development strategy and trajectory of its ATD-X, namely looking to France for
technical support and possible future cooperation, and early suspension of Boeing’s
AH-64D licensed production project.

4.4.3.4 Boeing AH-64D Licensed Production Project
In 2001, the JDA announced to licensed produce 80 units of Boeing’s AH-
64D Block II Longbow Apache multi-role combat helicopter to replace Bell’s AH-1

339
From December 1 to 31, 2008, Nikkei Shinbun had published a series of month-long daily special
reports, entitled “Shin-shin: Road to Its Flight.” It conducted interviews with several representative
Japanese aircraft makers, military personnel, and aircraft engineers, including the 94-year-old
legendary Mr. Shoichi Takayama, one of the major developers of Mitsubishi Zero fighter. He is also
the main advocate of Japan’s T-1, T-2, and F-1 fighter, as well as the major opponent of co-
development of Japan’s F-2 fighter with the U.S.

369
in Japan’s Ground Self-Defense Force (JGSDF) fleet with FHI as the prime
contractor and Boeing’s support in system integration and production (Figure 4-33).
In addition, JDA selected IHI as prime contractor to licensed produce the
helicopter’s T700-GE-701C engine. On March 15, 2006, FHI delivered the first AH-
64D Longbow Apache manufactured in its Utsunomiya factory to the government.
340

However, besides the first seven orders were funded by the government from 2003 to
2006, zero funding was allocated for the project in 2007 and 2008, although with
Boeing’s repeated requests. JDA’s decision clearly reflects Japan’s current hesitant
defense policy (including defense industry policy) resulted from the ongoing
domestic debate on the “correct” strategy to develop its aircraft industry, and at the
same time indicates a possible military strategy shift.

Figure 4-33: Boeing’s AH-64 Apache Longbow Combat Helicopter

Source: Boeing

340
Nikkei Shinbun, March 16, 2006.

370
Nevertheless, without a fundamental transformation of its self-imposed weak
military market structure, the future of all these indigenous efforts is limited and
uncertain. Japanese industrial policy could target and promote certain technologies
through deepening various ICP projects and initiating serious indigenous
development plans to reduce its reliance on American technology, increase
bargaining power, cultivate local R&D experience and capability, and upgrade
overall technological level and indigenization rate. However, it is not able to create
business and military strategies and ambition to guide domestic R&D to produce
innovation and concepts for developing true next-generation products. For instance,
the preemptive military concept of “stealth” was originated and concluded from
numerous trainings and actual operations of American military rather than
bureaucrats’ plans. As a result, the stealth concept has further become an important
guidance to direct both public and private’s R&D activities for an innovative end
product. Thus, Japan might be able to manage to “indigenously” develop its own 5
th

stealth fighter with similar performance of American F-35 or F-22, however it is still
catching up by copying innovative concepts, rather than producing.
In sum, the government’s hesitant defense policy has clearly exposed the
limitations of Japanese industrial policy in promoting its aircraft industry and pointed
to Japan’s self-imposed weak military market structure resulting from the outdated
grand strategy.

371
4.4.4 Possible Structural Transformation?
According to July 6, 2009 Nikkei Shinbun, Keidanren has publicly suggested
the government to re-discuss and “edit” the arms export ban in the government’s new
2010-2014 Outline of Defense Plan which will take place at the end of 2009.
341

Keidanren points out that the self-imposed arms export control has prohibited Japan
to participating in the international joint development project of F-35 stealth fighter
(led by the U.S. and co-developed by Italy, Israel, and Singapore) and resulted in
great loss for the nation. It further suggests the government to relax the ban by
applying case-by-case principle for allowing Japanese makers to participate in
international joint development of advanced weapons in order to increase Japan’s
bargaining power in getting advanced American military technology.
In fact, since the 1992 PKO act, Japan has gradually relaxed itself from the
limitations of the postwar self-imposed weak military market structure. For example,
the 1997 U.S.-Japan Guidelines for Defense Cooperation has allowed active use of
Self-Defense forces “in the situations in areas surrounding Japan.” In 2004, the
Koizumi administration, for the first time after the war, sent Self-Defense troops
overseas to Iraq for peacekeeping without a U.N. agreement, upon the U.S. request.
Three recent decisions also indicate possible grand strategy shift and structural
transformation of its weak military market structure. In 2007, the Japanese

341
It is interesting to note that the language Keidanren has used in suggesting the Japanese
government to relax the arms export ban. It indicates a clear trend of increasingly intense pressure
from Japan’s domestic makers to the government’s arms export control. In 1995 and 2004, Keidanren
used “suggest to reconsider”, and in 2009 it used “suggest to re-discuss and edit” the three principles
in prohibiting arms export.

372
government established the new Ministry of Defense (MOD) for better consolidating
military resources and strategy. The Diet also revised the Space Basic Law in 2008
to allow space development for military purposes. In addition, the government might
partially relax the arms export ban to allow arms export to “certain” countries in the
end of 2009. This decision will have more profound implications.
The government aims to incorporate global market incentives to stimulate
domestic military industry and reduce military procurement costs, which directly
proves the weak military structure theory. The decision also could create incentives
for Japanese producers to actively participate in collaborative defense programs with
the U.S. firms in share and exchange technology in order to fix the long-term
problem of unbalanced technology flow between both sides. In addition, Japan’s
aircraft industry could increase its bargaining power in ICP projects and obtain more
accesses to core technologies. Moreover, the halfway lift will give the government
and the industry more time and pressure to establish related industrial institutions
and structure in order to enter fierce international competition. With halfway lift, the
government can still remain in control. And the regulatory power of METI
bureaucrats will increase largely for still dominating the policy process in censoring
and controlling which weapon systems should be promoted, developed and exported.
Whether Japan’s recent decisions and moves will result in an overall
structural transformation is uncertain, but two things we can be sure of. First, Japan
has to release itself from the self-imposed weak military market structure for better

373
fit in current dynamic environment. Second, the bureaucrats will still dominate the
policy-making process.
In sum, Japan’s ICP and indigenous aircraft projects have clearly
demonstrated the government’s current industrial policy in simulating artificial
markets (including military markets) to attract private participation and investment
and to guide domestic R&D activities. It has aimed to counter the structural
constraints of the weak military market structure in order to achieve the ultimate goal
of an independent aircraft industry. ICP has given Japan best opportunities to
leverage its comparative advantage and play as a decisive third party in the fierce
competition of global aircraft industry. Thus, the government’s industrial policy has
created more artificial market incentives to encourage private makers to enter various
ICP projects in order to develop their specialties, and in turn, contribute to
development of Japan’s aircraft industry. In addition, Japan’s ICP efforts along with
the current indigenous projects have temporarily created a sound circle for its aircraft
industry. However, Japan’s tendency in emphasizing technology rather than market
strategy has planted an uncertain seed for realizing its goal of an indigenous aircraft
industry. On the other hand, the situation of Japan’s military aircraft sector is far
more complicated. The controversial results of FS-X and the U.S. policy shift in
technology transfer have casted strong doubts toward the government’s industrial
policy, and at the same time, challenged its defense policy and the self-imposed
weak military market structure. It has further affected the government’s later
decisions on the development of P-X, C-X, ATD-X, and the licensed production of

374
Boeing’s AH-64D helicopter. In sum, without a fundamental transformation of the
weak military market structure, the future of all the current indigenous efforts will be
limited and uncertain.

4.5 CONCLUSION
With the U.S.’ generous technology transfer and active engagement of the
government and industry, Japan had soon recovered from the war, and become the
most reliable 2
nd
and 3
rd
tier components supplier to the world’s major aircraft
developers. However, the interplay of the early strategy, the external factors, and two
major market imperfections (insignificant domestic market and the self-imposed
weak military market structure), have resulted in several problems for Japan to
realize an independent aircraft industry. As a result, the government has been
adjusting its industrial policy to deepen diverse ICP projects and initiate serious
indigenous projects hoping to correct these structural problems and weaknesses.
However, without a structural transformation, the future of these efforts is limited
and highly uncertain.
Thus, the major findings from Japan’s aircraft industry have provided some
implications to the post-bubble Japanese political economy. First, Japanese industrial
policy is responsive and corrective in nature. It is an indispensable government
instrument to counter the problems resulted from Japan’s self-imposed weak military
market structure. Second, the government still plays a big role in Japan’s economic
and industrial development as long as this weak military structure remains. The

375
Japanese government has been utilizing its industrial policy to promote various ICP
projects which function as artificial market forces to attract private participation and
investment, and to promote domestic R&D activities. Moreover, the government
plays a more dominant role in Japan’s indigenous projects. It has initiated several
public-subsidized projects targeting at core technologies and then passed on to
capable private manufacturers. In addition, in both ICP and indigenous projects, the
government tends to value cooperation rather than competition and emphasize
advanced production rather than innovation.
Third, METI still dominates the industrial policy process and tends to team
up with major private players in promoting Japan’s aircraft industry. Moreover, the
current promotion projects have largely reflected the bureaucrats’ linear plan rational
and future prediction in guiding the development of Japan’s aircraft industry, with
many technology plans, however without any sound marketing strategy.
Furthermore, Japanese industry policy and its artificial markets have failed to
provide sufficient market incentives for the further development of its aircraft
industry. Therefore, the government will have to face more daunting challenges to its
weak military market structure, especially in the face of a dynamic global
environment.
Whether the Japanese government’s recent moves imply an overall structural
transformation in the near future is uncertain. However, two things can be sure. First,
Japan has to and will adjust itself to better fit in the dynamic world. Second, the
bureaucrats will still dominate the policy-making process with censorship and other

376
control regulations. For the very existence of Japan’s weak military market structure,
Japan simply can not converge to the U.S. liberal market model or to any others.
Japan needs to have a different political economic system, to take different
development path, and to utilize different strategy in its way to become rich nation
and strong army.

377
CHAPTER 5: CONCLUSION

5.1 INTRODUCTION
This dissertation focuses on the redefinition of Japanese industrial policy. My
main thesis centers around Japanese market failure mentality theory and the artificial
market forces created for its robotics and aircraft industries. This chapter compares
Japan’s robotics and aircraft industries in terms of their early development strategies,
status, current strategies, and my major findings from these two case studies in the
hope to bear more implications and conclusions to Japanese capitalism and the
changes continuities of its industrial policy. In the last section of this chapter, I
highlight various limitations of this research and the methods applied in the two case
studies, following some possible contributions to the studies of comparative political
economy.

5.2 JAPANESE MARKET FAILURE MENTALITY AND INDUSTRIAL POLICY

5.2.1 Redefinition of Japanese Industrial Policy
One obvious and major problem of current literatures and debates on
Japanese industrial policy is the confusing definition, which has further made
academic discussion difficult and produced greater problems. Neo-classical scholars
look at Japanese industrial policy from a purely economic perspective and assert that
the burst of economic bubble and the 1990s reforms have been pushing Japan to

378
transform and converge to Western liberal market model in order to keep its
economy competitive. On the other hand, revisionists believe that industrial policy
involves wide range of considerations in political, economic, social, and even
national security in better respond to Japan’s social preferences. They further argue
the reforms have aimed to modify the existing system rather than conducting a
fundamental model shift.
As such, I redefine Japanese industrial policy as one of the government’s
normal functions and put it back to the original Japan’s historical context in order to
explore the dominated ideology/mentality. Thus, I argue that Japanese industrial
policy is a product of market imperfections and market failure mentality of Japanese
elites resulted from Japan’s historical background based on the three academic
traditions. First, Rodrik suggests that industrial policy is nothing special.
342
It is just
another government task that can vary from routine to urgent depending on the
nature of growth constraints a country faces. He further defines industrial policy as
government policies that stimulate specific economic activities and further promote
structural change. As such, industrial policy is not about industry per se, it is just like
other government policies in education and social welfare areas.
Second, Johnson traces the origin of Japanese industrial policy back to Meiji
era. When Japan began to industrialize, it did not have the tariff autonomy therefore
the government had to take a direct hand in economic development in order to

342
Dani Rodrik. 2007. Normalizing Industrial Policy. Harvard University.
http://ksghome.harvard.edu/~drodrik/Industrial%20Policy%20_Growth%20Commission.pdf

379
achieve economic independence and national autonomy.
343
For that purpose,
industrial policy was a necessary mean to transform the overall structure. Similarly,
Samuels also traces the origin of Japan’s “techno-nationalism” back to Meiji
restoration.
344
He argues that the sense of insecurity and vulnerability drives Japan to
see technological prowess as first priority to generate wealth, security, and
autonomy. Japanese leaders understood that economic strategy is at least as
important as military power, and technology provides distinct advantages in both
spheres. Technology is the basis for industrial success, which in turn yields wealth
and the capacity to produce effective military equipment. Industry-based wealth also
means invulnerability to outside pressure and resulting in autonomy.
Third is the market imperfection mentality. Rodrik asserts that the market
failures (institutional weakness and contracting incompleteness) blocks structural
transformation and economic diversification.
345
At the same time, they provide a role
for the government and its industrial policy. Thus, economic development is not an
automatic process and the market imperfections have to be seen as part of what it
means to be underdeveloped. He further points out, “market imperfections hinder the

343
Chalmers Johnson, ed. 1984. The Industrial Policy Debate. San Francisco, CA.: Institute for
Contemporary Studies. pp. 11-14.

344
Samuels defines “techno-nationalism” as the national security of advanced technological societies
in on a scientific and technological industrial base whose products simultaneously serve civilian and
military needs, and he asserts that the link between military technology and the civilian economy
characterizes the contemporary Japanese paradigm.
Richard J. Samuels. 1994. Rich Nation, Strong Army: National Security and the Technological
Transformation of Japan. Ithaca: Cornell University Press.

345
Dani Rodrik. 2007. Normalizing Industrial Policy. Harvard University.
http://ksghome.harvard.edu/~drodrik/Industrial%20Policy%20_Growth%20Commission.pdf

380
full private appropriability of social returns in growth-promoting investments, and
this problem would remain even when institutions are passable,” therefore, “poor
countries remain poor because markets do not work as well as they could not foster
the structural transformation that is needed.”
346

Thus, in combination of these three theses and my observations, Japanese
industrial policy is a series of government actions to simulate market forces in order
to promote certain strategic technologies and industries to counter structural
constrains and market imperfections, as well as transforming overall market structure
in seeking for national development, security, and autonomy as a whole. More
specific, industrial policy utilizes various types of policy instruments to simulate
artificial markets and market forces in order to promote certain industries that both
public and private elites believe are critical to Japan’s national development and at
the same time with possible market failures that the market alone is not able to
correct. As such, my theory suggests that Japan’s current industrial policy in the
post-bubble era is trying to simulate artificial markets (including military markets)
both in terms of quality (such as R&D direction/incentives and technological
applications) and quantity (such as market demand, profit incentives, and economy
of scale) in order to achieve three major goals: 1) economic growth and expansion,
2) providing R&D incentives and direction as well as industrial integration capability

346
Ibid.

381
for further technological development and structural transformation of industry as a
whole, and 3) national security.
Following that logic, the possible market failure and the importance to
Japan’s future development further invite and legitimize government interventions in
Japan’s economic and industrial development. And through institutionalized
communication and negotiation, Japan’s public and private elites together formulate
consensus and design mechanisms to simulate artificial market forces, both push and
pull, and not only with economic rationality but with broader considerations in
social, political, technological, and national security in maintaining the values of
stability, security, and autonomy. Therefore, the government can play either strong
or weak role depending on the particular industrial structures and settings which
includes economic, social and political foundations/institutions of a given industry.
As such, Japanese industrial plays responsive role in correcting possible market
failure by transforming market and industrial structure of particular industries and
also plays supplementary role in supporting Japan’s overall grand strategy.
In sum, redefining Japanese industrial policy is a necessary step and an
important foundation for further academic researches and discussions on Japan’s
political economy studies. Therefore these three academic sources together, namely
normalizing industrial policy as one of government’s regular functions and activities,
putting it back to the original Japanese historical context, and looking for the
dominating ideology/mentality of both public and private elites, can provide us with
a good starting point and analytical framework for further advancing in Japanese

382
political economy related researches, which might yield more contributions to
political science and political economy studies.

5.2.2 Japanese Market Failure Mentality and Weak Military Market Structure
Japanese market failure mentality refers to that the Japanese elites (both
public and private) tend to believe that markets fail most of the time in allocating
goods, services, and resources, and which has provided the justification for
government policy interventions through such as taxes, subsidies, and regulations
attempting to correct possible market imperfections. In addition, they also look at
market failure as a pervasive feature of underdeveloped economy with the corollary
that the state has an important role to play in correcting it. In other words, they do
not see development as an automatic process and also do not believe market forces
alone can foster needed structural transformation when market failure appears, and
the problem will remain when institutions are passive. Thus, they further use this
belief to reexamine Japan’s historical backgrounds, political, economic, industrial,
social, military, and international contexts and formulate a strong mentality believing
that Japan is in disadvantageous positions in the face of Western dominance or
unfavorable market structure for developing certain industries that are critical to
Japan’s broader and long-term national development. As such, government
leadership and interventions are necessary in correcting these market failures for
Japan’s future development since the market forces alone are insufficient to provide
incentives for rapid development and structural transformation.

383
In general, there are three types of Japanese market imperfections, namely
late developer for catch up purpose, lack of resources (natural, financial, human, and
technological resources), and infant industry (lack of market incentives for industries
in their infant stage). For instance, for late industrializer and catch up purpose in the
postwar era, the Japanese state often regards the advancement of industrialization as
a substantive social and economic goal and defines the role of government in
formulating and carrying out heavy-handed industrial policy interventions to reach
the goal effectively in countering existing structural constraints.
In addition, postwar Japan further has one very unique market imperfection,
namely the self-imposed weak military market structure. Japan’s postwar weak
military market structure was constructed by the 1947 Constitution of Japan, 1950s
U.S.-Japan Security Treaty, Yoshida doctrine, and six main measures, namely the
1960s and 1970s arms export control, the 1969 Peace Space Act, the 1967 Three
Non-Nuclear Principles, the 1950s law and policy in restrictions on the use of
military forces, the 1970s one percent GNP limitation on defense spending, and the
use of economic bureaucrats to plan and control the development of Japan’s defense
industry, out of three main considerations: 1) to concentrate all resources in
economic and industrial development; 2) not to become a major military power nor
its military (and military industry) to grow uncontrollably again; 3) to maintain
“sufficient” military capability. Thus, this weak military market structure had
allowed Japan to concentrate resources and capital accumulation for rapid economic
and industrial recovery from the war without heavy military burden.

384
However, without a healthy military market to provide market demand, profit
incentives, scale of economy, R&D direction, trial and error learning opportunity,
and competition pressure, this postwar institutional setup has also set a growth limit
for Japan’s overall industrial and technological development, strategy manipulation,
and seriously weakened its military and industrial capabilities on the way of catching
up and competing with the West since 1950s. For instance, with limited domestic
military market and the absolute absence of export market to provide sufficient
market incentives, Japan’s capable makers KHI, MHI, and FHI have tended to
concentrate on low-risk and profit-making markets and dual-use technology (as the
best and only solution to achieve economic development and maintain military
capabilities) rather than actively promoting innovative R&D activities, which has
greatly retarded their capabilities and distorted the direction in upgrading Japan’s
overall industrial and technological level.
Therefore, upon recognizing the necessity of a healthy military market, this
weak military market structure has further invited and legitimized government
interventions in Japan’s economic and industrial development. Thus, MITI started to
utilize its industrial policy to simulate artificial markets (also military markets) both
in terms of quality (promote dual-use technologies for providing R&D
direction/incentives) and quantity (promote diversification development in providing
scale of economies, trial and error learning opportunity and profit incentives) in
order to achieve three major goals: 1) rapid economic growth and expansion, 2)
maintain sufficient military capabilities, and 3) promote industrial progressing and

385
upgrading such as industrial integration capability for further technological
development. This helps to explain why Japanese government has kept initiating
cyclic inefficient (but effective to Japan’s overall goals) and expensive industrial
policies in promoting certain industries.
In sum, Japan’s postwar self-imposed weak military market structure has
impacted its military, industrial, and economic development as well as its overall
institutional arrangement and industrial policy practices in its way of catching up and
competing with the West since 1950s. Thus, using this obvious structural feature of
postwar Japan as main analytical framework could help to explore the nature and
logics of Japanese industrial policy and shed some possible implications to Japan’s
political economic arrangements and current industrial policy practices in the post-
bubble era.

5.3 POST-BUBBLE INDUSTRIAL POLICY AND ITS ARTIFICAL MARKET
FORCES
The collapse of economic bubble in the late 1980s has forced Japan to
conduct comprehensive structural reforms to adjust its postwar political economic
arrangements for lower system costs and higher efficiency in order to reposition
itself in the much more dynamic internal and external environments of the 21
st

century. Although the reforms have integrated several “liberal” items from the U.S.
model, they can be reinterpreted as actions based on the elites’ belief in market
failure that has molded the existing institutions and development strategy. These

386
institutions contain several constraints and incentives with decade-long development,
which have greatly shaped the substance and trajectory of reforms. In addition, in the
process of the comprehensive reforms, Japanese elites (both public and private) have
carefully selected reforms items and created several institutional innovations based
on cost-efficiency calculation in order to make necessary adjustments to meet both
internal and external challenges by reducing costs and enhancing the benefits of
these institutions.
As a result, the reforms have produced a new industrial promotion system
which has better integration of ministerial jurisdiction and promotion functions.
Moreover, they reflect bureaucrats’ plan rational and bureaucrat-centric
administration, value cooperation over competition, and carry strong protective
nature and market failure mentality. Moreover, the reforms have also produced
several important institutional innovations in carrying and reflecting several diehard
characters of Japanese capitalism, which has constructed the current overall
landscape of Japanese industrial policy system in the post-bubble era: 1) the
coordinator nature of new CSTP with the powerful METI and MEXT in reflecting
bureaucrat plan rational; 2) the newly designed hub organizations in reflecting
bureaucrat-centric administration; 3) the university revitalization and the new
alliance of government, industry, and academia in carrying cooperation nature; and
4) the SME revitalization in reflecting the protective character of industrial policy.
Thus, the major legal establishments in combination with the four main institutional
innovations during the reform era have created METI’s new industrial technology

387
promotion system in carrying out its current industrial policy to simulate various
artificial market forces by teaming up with major domestic players and carrying out
under the new alliance of government, industry, and academia. They are also under
various supports from the newly designed hub organizations such as NEDO, AIST,
and MSTC in tackling top-end technological challenges and hurdles in order to
concentrate resources to achieve more technological innovations and breakthroughs.
And the R&D results from these major projects are to be transferred through SMRJ,
SBIC, and AIST-INCS to SMEs for rapid commercialization and creation of venture
businesses and new businesses. In addition, artificial markets are defined as markets
that are created by industrial policy rather than through market forces in various
forms such as subsidies, loans, national R&D projects, public procurements,
institutional arrangements, legal establishments, and policy manipulations. They
simulate six major market forces of a competitive market, namely market demand
and profit incentives, R&D direction, economy of scale, market competition
pressure, trial and error learning opportunity, and innovative concepts (Table 5-1). In
sum, for the existence of different national structure (such as the postwar self-
imposed weak military market structure), Japan has to be different in political
economic arrangement and needs to adopt different path and strategy in its way to
prosperity.

388
Table 5-1: Artificial Markets in Japan’s Robotics and Aircraft Industries

Means Simulating Market Functions Example Projects
Financial Robotics Aircraft
Subsidies
Loans
1. Support private R&D activities on promising
technologies;
2. Support private participation in international joint
projects;
3. Support private firms to develop technological
specialties;
4. Provide R&D direction and attract private
investment in R&D;
5. Support technology transfer;
6. Support creation of new joint venture;
7. Attract private participation and investment in
national R&D projects;
HRP; 21
st

Century Robot
Challenge
Program;
HAL;
B787; A380;
SST; MRJ;
Engine; Flight
Control
System;
Public
Procurements
1. Provide Market demand and profit incentives;
2. Provide R&D direction;
3. Attract private investment ;
4. Provide economy of scale; trial and error learning;
Kawada UAV
Yamaha UAV;
Kenaf UGV;
Comet UGV;
P-X; C-X;
AH-64D;
Institutional
Arrange-
ments
National R&D
Project
1. Provide R&D direction and attract private
participation in R&D activities;
2. Attract private investment in R&D;
3. Tackle top-end technological challenges;
4. Self-validate indigenous technologies;
Hub
Organizations
1. Provide technological and technical support;
2. Provide communication channels, collaboration
coordination;
3. Provide Administrative assistance such as patent
application;
4. Promote technology transfer among public, private,
academia, and military;
5. Provide commercial assistance such as creation of
new joint venture
6. Promote transfer R&D results to mid- and low-
stream private firms for rapid commercialization;
7. Initiate and implement national R&D projects on
promising technologies;
HRP; 21
st

Century Robot
Challenge
Program;
Kawada UAV
Kenaf UGV;
Comet UGV;
Urashima
UUV;
MRJ; Engine;
Flight Control
System; ATD-
X
Legal
Law
Establishment
&
Policy
Manipulation
1. Law establishment to support private participation
in international
joint R&D project;
2. Policy manipulation to coordinate collaboration of
public, private, and academia;
3. Policy manipulation to coordinate collaboration of
private firms;
4. Policy to support developing technological
specialty;
5. Law and policy to create external technology
sources;
6. Policy to promote standardization;
HRP; 21
st

Century Robot
Challenge
Program;
Kenaf; Comet;
Urashima;
B787; A380;
SST; MRJ;
Engine; Flight
Control
System; ATD-
X;

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5.4 COMPARISON OF ROBOTICS AND AIRCRAFT INDUSTRIES

5.4.1 Early Development of Robotics and Aircraft Industries Comparison
With the disastrous ending of WWII, Japan decided to adopt the balanced-
calculation Yoshida doctrine as its postwar grand strategy and rely on U.S.-Japan
Security Treaty as a main defense. From there, Japan constructed a weak military
market structure in order to concentrate all available resources to economic
development. In turn, these postwar institutional arrangements have resulted in a
very unique political economic system with government domination and heavy
intervention. As the self-imposed weak military market structure fails to provide
sufficient market forces in guiding the development of wide range defense-related
industries such as robotics and aircraft industries, therefore it has further invited and
legitimized government leadership and intervention in economic development by
utilizing industrial policy to simulate artificial markets (and military markets) both in
terms of quality (providing R&D incentives and direction, as well as trial and error
learning opportunities) and quantity (providing market demands, profit-incentives,
and scale of economies), in order to achieve three major goals: 1) rapid economic
growth and expansion, 2) maintain sufficient military capabilities, and 3) promote
industrial progressing and upgrading such as industrial integration capability for
further technological development (Table 5-1). In addition, this weak military market
structure and the industrial policy together have produced many embedded structural
problems in distorting the development of Japan’s robotics and aircraft industries

390
(and other defense-related industries) (Table 5-2). First, they are too small in scale
and weak to provide sufficient profit incentive, scale of economies, R&D direction,
and trial and error learning opportunities, and competition pressure comparing to
large global market. Second, there is no active military strategy to function as
providing ground for innovative concepts, R&D direction, conceptualization and
design, as well as developing fit-in-strategy military technology. Third, the
government tends to coordinate and reward major players (since they have the most
motives and capabilities to compete for global market) with domestic procurement
and public projects as incentives to allow this vested-interests group to preoccupy,
concentrate, and stabilize the artificial markets. Thus, the overall industrial structure
values cooperation rather than competition. Forth, the weak military market
arrangements require big government role and heavy intervention in economic and
industrial development in order to fulfill the functions of real competitive. As such,
there is a clear tendency for industrial policy to reflect bureaucrats’ linear plan
rational from their prediction toward near future and assumption of a clear
development trajectory of a given industry.

391
Table 5-2: Comparison of Japan’s Robotics and Aircraft Industries

Robotics Industry Aircraft Industry
Reinforced
Factors
- Labor Shortage;
- Speed up economic development;
- U.S. generous licensed production
opportunities;
- U.S. government and Boeing’s control
growth;
- Protected nature of aircraft industry;
- Fierce competition of global market;
Strategy
Before
1990s
- Focus on industrial robotics - Stable licensed production for military
aircrafts;
- Emphasis of domestic production;
- Joint development for civil aircrafts;
- Indigenous projects for experiment nature;
Embedded
Structural
Problems
- Limited domestic military market and no military export market to provide market
incentives;
- No active military strategy to guide R&D and applications;
- Government tends to coordinate and reward major private players;
- Bureaucrats’ linear plan rational in guiding economic and industrial development;
Status - Leading in general robotics
technology;
- Largest and most advanced industrial
robotics
- 2
nd
and 3
rd
tier components supplier;
- Piecemeal civil aircraft sector;
- collapsing and inefficient military aircraft
sector;
Major
Strength
- Advanced industrial robotics in
manufacturing purposes
- Strong manufacturing capabilities and related
technologies such as composite material and
electronics
- Private firms tend to concentrate on profit-making and low-risk markets;
- Encourage cooperation rather than competition; production rather than innovation;
- Overemphasis on dual-use technologies;
- Indirect technology transfer from civilian to military purposes;
Major
Weakness
- Weak basic R&D
- Weak extreme environment and
military related technologies and
applications
- Weak at conceptualization, market-related
activity, core technology, system integration
experience and capability;
- Heavy reliance on external technology
source;
- Heavy reliance on limited domestic military
procurement;
- Side-job nature of aircraft related production;
External
Factors
- Cell-style and flexible production
- Military robotics as mainstream for
future warfare and national power;
- Rapid growing global
market/competition;
- U.S. policy shift in technology transfer;
military deployment; foreign policy toward
China and N. Korea;
- ICP as mainstream to develop aircraft;
- Fierce competition between Airbus and
Boeing;
Current
Strategy
- Promote RT common platform;
- Promote tri-use technologies;
- Promote extreme environment, and
military potential technologies and
applications;
- Diverse ICP projects for access to
conceptualization and design; core
technologies and system integration;
- Aggressive indigenous projects in system
integration, core technologies,
conceptualization, market-related activities;
- Less licensed production

392
Moreover, these embedded structural problems have caused the same or
similar weaknesses of both robotics and aircraft industries. First, the industry tends
to concentrate on profit-making and low-risk markets rather than promoting
aggressive R&D activities, diversify applications, and creation of new markets. As
such, the overall industrial structure values advanced production rather than
innovation and creativity. Second, as the government tends to coordinate major
players in sharing public projects and procurements, therefore the overall industrial
structure emphasizes cooperation rather than competition. Third, both the
government and industry emphasize the importance of dual-technology as a
necessary mean to achieve rapid economic development and maintain sufficient
military capability simultaneously under the weak military market arrangement.
Forth, as such, Japan’s military has established certain R&D institutional
arrangements in absorbing, applying, and integrating these dual-use technologies in
practical military applications. In addition, private firms also tend to use the
increasing gray area of dual-use technology to enjoy significant export businesses
while following the government’s arms export control. Moreover, the desire for a
healthy military market and export market is still driving the private players to
pressure and challenge government regulations. And the government has to
repeatedly re-articulate its policy.
In addition to the common weaknesses resulted from structural problems, the
differences in reinforced factors and government strategies have further differentiate
the early development (1950s-1990s) of Japan’s robotics and aircraft industries. In

393
terms of robotics industry, with the increasing social worry of labor shortage and
high expectation of utilizing robot as a mean to speed up economic and industrial
development in late 1960s, the Japanese government had implemented an elaborate
set of direct and indirect industrial policy in promoting the level of robotics
technology and facilitating the widespread use of industrial robots in Japanese
industry. This early strategy was further reinforced by the weak military market (for
it failed to provide market incentives in diversifying robotics R&D direction and
applications for further technological breakthroughs and development) and has made
Japan’s robotics industry concentrate heavily on profit-making and low-risk
industrial robotics for manufacturing purposes. As a result, Japan has become the
world’s largest and most advanced industrial robot nation and can claim considerable
expertise in general robotics technology and application since late 1970s. However,
it has also tilted the overall development of Japan’s robotics industry and formed the
current characteristics, namely strong manufacturing applications, weak basic
technology R&D, as well as weak military and extreme environment fields.
On the other hand, the postwar development of Japan’s aircraft industry was
much more complicated. Although Japan showed a strong intention to recover its
aircraft development with strong support from the U.S.’ generous technology
transfer, however, it was distorted by the weak military market structure and
reinforced by the U.S. government and Boeing’s control growth strategy, protected
nature of aircraft industry, and fierce competition of global market. As such, the
initially active strategy to develop a strong and independent aircraft industry had

394
turned into passive solutions of relying on licensed production for military aircrafts,
joint development for civil aircrafts, and promoting indigenous projects for
experiment and technology-validating purposes. Thus, the interplay of Japan’s early
strategy and the reinforced factors along with the well-known manufacturing
capabilities have produced controversial results. That is, Japan has become the most
reliable 2
nd
and 3
rd
tier aircraft components supplier, however on the other side of the
coin, has resulted a piecemeal civil aircraft sector and a collapsing and inefficient
military aircraft sector. Moreover, it has molded the current features of Japan’s
aircraft industry: 1) heavy reliance on external technology source, 2) heavy reliance
on domestic military procurement, 3) side-job nature of domestic aircraft related
production, and 4) current technological appearances, namely strong manufacturing
and mass production capabilities, strong aircraft related technologies and industries
such as composite materials and electronics, as well as weak at conceptualization,
market-related activities, core technology, and system integration capability.

5.4.2 Current Strategy Comparison
In order to correct the major weaknesses and structural problems embedded
in the self-imposed weak military market structure, Japanese government has begun
to reformulate and implement various industrial policies in simulating larger-scale
artificial markets to promote further development of next-generation robotics and
aircraft industries since 1990s (Table 5-1).

395
In robotics industry, METI’s HRP project, the 21
st
Century Robot Challenge
Program, and many more public robotics projects from different ministries and
agencies have functioned as larger scale artificial markets to provide more market
incentives in redirecting robotics R&D toward tri-use technology, and diversifying
applications in service and extreme environment fields. For the past decade, these
public-private collaborative efforts have produced tentative achievements. First, they
have successfully created and enhanced the government’s institutional arrangement
and incorporated more private actors from different industries in promoting Japan’s
next-generation robotics industry. Second, the government projects have produced
numerous technological breakthroughs from both developing fundamental robotics
technology and tackling top-end technological challenges such as AI technology.
They have pushed several service and extreme environment robots entering early
commercialization stage through technology transfer and creation of new venture
businesses. Third, the tri-use technologies derived from civilian purposes in medial,
observation, disaster prevention and rescue, agricultural, humanitarian demining, and
oceanic research have gradually integrated into TRDI’s Future Unmanned Defense
Program and UANCS through technology transfer and support from AIST. And the
last, the RT common platform (of modularized software and robotic components)
has integrated and standardized most major domestic robot developers for an
enhanced division of labor with high degree of specialization and a newly
established complete supply chain of domestic robotics industry in achieving lower
R&D cost, higher efficiency, more flexible and innovative robotics applications.

396
Moreover, it also acts as Japan’s first step to pursue international standardization of
robotics industry for early domination of large global market.
On the other hand, Japan’s current aircraft industry development strategy has
evolved into three major focuses: diverse ICP projects, aggressive indigenous
projects, and less reliance on licensed production, in order to simulate larger artificial
markets to correct current major weaknesses and regain strategic activeness in the
development of its aircraft industry (Table 5-1). First, the government has been
utilizing direct and indirect measures such as success-condition loans and R&D
subsidies in supporting private makers to actively participate in and deepen (as major
partner rather than subcontractor) diverse ICP projects for the opportunities to absorb
core technologies and system integration capabilities. For example, Japan’s active
participation as a major risk-sharing partner in Boeing’s B787 ICP project has
successfully resulted in 35 percent of developmental responsibilities centered on the
construction of the wings (breaking Boeing’s previous 20 percent work share
limitation and non-core components control growth strategy), access to core
technologies such as engine and avionics, as well as marketing activities for MHI,
KHI, and FHI, by leveraging Japan’s generous public investment ($3 billion from
METI’s IADF fund) and advanced manufacturing capabilities. Second, METI and
JDA have initialized six aggressive indigenous projects: the MRJ project,
Environment-Friendly, High-Performance Small Aircraft Engine, Advanced Flight
Control System, ATD-X stealth fighter project, P-X maritime patrol/antisubmarine
warfare airplane, and C-X cargo transport airplane, aiming to cultivate Japan’s

397
technological capabilities in conceptualization and design, core technologies such as
engine and flight control system, system integration, and marketing-related activities,
in combining with its well-known strong composite materials, electronics, robotics,
and manufacturing capabilities for an indigenous aircraft industry. And the last,
Japan still continues and attempts to grab any possible and necessary military aircraft
technology transfer from the U.S. through licensed production projects, however at
lesser degree. FHI’s licensed production of Boeing’s AH-64D Block II Longbow
Apache multi-role combat helicopter to replace JGSDF’s Bell AH-1 fleet, and IHI’s
licensed production of the T700-GE-701C engines are current ongoing examples.
In general, there are four main factors yielding different government
strategies in promoting Japan’s robotics and aircraft industries. The first factor is the
different statuses (including strengths and weaknesses). As Japan is one of the
world’s leading and the most important origin in advanced robotics technologies and
applications, its current strategy in promoting robotics industry appears to be much
more aggressive orientation such as utilizing the standardized RT common platform
as a starting point to push for international standardization for early domination of
large global market. In addition, Japan’s strategy also emphasizes domestic robotics
R&D and indigenous efforts rather than international cooperation or collaboration in
order to safeguard its core robotics technologies and integrate domestic players as a
whole to aim at the global market. On the other hand, since Japan’s aircraft industry
is still in 2
nd
and 3
rd
tier supplier and subcontractor status, the strategy orientation is
actively and simultaneously promoting diverse ICP projects with various global

398
system integrators (as multiple external technology sources and opportunities rather
than solely and heavily relying on the U.S.), and aggressive indigenous projects
which aims to make Japan graduate from current subcontractor-ship and become a
real player in global market with an indigenous aircraft industry without heavy
reliance on foreign technology.
Second, different external factors have impacted the government’s strategies
in promoting robotics and aircraft industries. Two major external factors are driving
Japan’s current industrial policy in promoting next-generation robotics. 1) The
manufacturing and production style has been changing from line to cell production
and from mass to flexible production, which requires next-generation multi-function
robots with more AI and other advanced technologies. 2) While countries have been
vigorously developing robotics technology for future warfare and overall national
power as a mainstream and fiercely competing for the larger global market, Japan,
however, is almost absent in this dynamic new game. Thus, they have further invited
and legitimized government intervention and industrial policy in simulating artificial
markets and military markets to redirect and diversify Japan’s robotics industry
toward next-generation tri-use robotics technology and applications. On the other
hand, in terms of aircraft industry, there are also two main external factors impacting
the government’s strategy. 1) The ICP as mainstream in developing aircrafts as well
as the fierce competition between Airbus and Boeing have opened the door for Japan
to play as the third decisive party in catching more chances to enhance core
capabilities of its aircraft industry. 2) Moreover, the U.S. policy shifts in technology

399
transfer, military deployment in Asia, and foreign policy toward China and North
Korea have further pushed Japan to gradually seek for a more active and independent
defense policy as well as indigenous defense industry, especially aircraft industry.
Third, the development of aircraft industry usually costs much more (both in
time and money) than robotics, therefore private aircraft makers demand stronger
market incentives and scale of economies to water down their R&D costs and
increase profit. Here, the impacts and problems from Japan’s self-imposed weak
military market structure have become more obvious and requiring even more and
larger-scale government interventions than robotics industry. Therefore, there have
been (and also will be) higher degree of private reactions to challenge the
government’s policy and regulation in maintaining current weak military market
structure. And forth, aircraft industry is a very concentrated and protected sector and
with very highly political and military sensitivities, and involve more economic and
industrial considerations at current stage. Major aircraft producing nations such as
the U.S. have long been utilized public policy in promoting and securing their
aircraft industry. This is especially true for military aircraft sector, with extremely
high entry barriers there has been basically no new military aircraft market entrants
in many decades. Therefore, Japan’s strategy in developing an indigenous aircraft
industry has been highly vulnerable to external factors and changes than its robotics
industry. However, it does not mean robotics is much less sensitive, just military
robotics technology is still in its infant stage of development and requires more
technological breakthroughs, especially in AI, network, and operation-control

400
strategy. As the new game has been started, robotics industry will, too, gradually
become more protected and concentrated in nature, just like the aircraft industry.

5.4.3 Comparison of Major Findings
The major findings from these two case studies also shed some similarities
and differences. In terms of similarities, first, the weak military market structure has
distorted the overall development of both robotics and aircraft industries, although
resulting in some different weaknesses (Table 5-1). Second, the weak military
market structure has further invited and legitimized government’s big role and heavy
intervention in utilizing industrial policy to simulate artificial markets in both
industries. Third, the development strategies of both industries reflect bureaucrats’
linear plan-rational rather than market mechanisms. Forth, government tends to team
up and coordinate major private players in promoting these two industries and values
cooperation rather than competition. Fifth, institutional arrangements in promoting
these two industries emphasize developing and facilitating dual-use technologies as a
necessary mean to achieve economic growth and maintain military capability
simultaneously under Japan’s self-imposed weak military market structure. And last,
private firms in both industries tend to concentrate on profit-making and low-risk
markets and emphasize advanced production rather than innovation.
In terms of different findings, first, the government’s strategy in promoting
robotics industry has incorporated all public, private, and academic players for
collaborative projects. However, there are mainly public and private sectors in

401
aircraft industry. This difference reflects the oligarchic, protected, concentrated, and
large-scale natures of aircraft industry along with its highly political and military
sensitivities. Second, there is only one track of technology flow from civilian to
military sector in Japan’s robotics industry. However, there are two tracks of
technology flow between civilian and military sector in its aircraft industry. In
addition, these two tracks of technology flow mutually support each other for further
development. This implicates the differences in industrial structures, institutional
arrangements, strategies, and development status in these two industries, and again,
the oligarchic nature of aircraft industry. Third, Japan’s aircraft industry aims to
become an independent player in the global market at current stage. Therefore it does
not have aggressive strategy due to the lack of strategic activeness, unlike its robotics
industry aiming to dominate global market by its standardized common platform.
This implies the different development status between these two industries. Forth,
due to heavy reliance on external technology sources and protected nature, Japan’s
aircraft industry has less strategy activeness and is highly vulnerable to external
factors and changes. Fifth, as the large-scale in nature, Japan’s aircraft industry has
suffered more structural problems and weaknesses from its self-imposed weak
military market structure. And the last, the strategy in promoting Japan’s aircraft
industry appears to be outward in nature, namely active promotion and engagement
of international cooperation and collaboration. On the other hand, robotics industry
shows an inward orientation emphasizing indigenous technology and application.
This difference reflects different development stage between both industries and at

402
the same time demonstrates the flexibility and tailor-made characteristic of Japanese
industry policy.

5.5 IMPLICATIONS TO JAPAN’S CURRENT POLITICAL ECONOMIC
ARRANGEMENTS
As such, the major findings from both case studies have shed some possible
implications to the post-bubble Japanese capitalism. First, Japanese industrial policy
is responsive and corrective in nature rather than active or proactive as
conventionally suggested. Japanese industrial policy is a necessary and indispensable
governmental instrument to correct the problems and weaknesses from Japan’s
postwar weak military market structure. At the same time, industrial policy also
reflects the market failure mentality of both public and private elites. Second, the
government still has a big role in Japan’s economic and industrial development as
long as this weak military structure remains and keeps inviting and legitimating
government interventions. And the industry still demands the government’s strong
leadership and coordination function to correct the problems and weaknesses from
the weak military market structure. In addition, although the post-bubble reforms
have signaled a tendency of converging to the U.S. liberal market model by
incorporating more participation in industrial policy making, however, it requires
more government roles in transforming the entire industrial structure. As a result, the
scale of government’s industrial policy planning is becoming larger, incorporating

403
more actors, and requiring more public resources. This, in turn, is increasing
government’s role in economic and industrial development rather than decreasing.
Fourth, METI still dominates the industrial policy process and tends to team
up with major private and academic players in promoting certain strategic industries,
although with participation from other government agencies. In surface, CSTP acts
as the commander for Japan’s overall S&T policy which implies more political
participation and influence to industrial policy process. However, in reality METI is
still the actual industrial planner since CSTP does not possess expertise of science
and technology as well as enough detail information and experience in formulating
industrial policy. As a result, CSTP can only give out vague visions, goals, and
principles and has to rely on other ministries to provide detailed information and
formulate detail industrial policy. In addition, although there are more players such
as MAFF and MEXT participating in industrial policy making, however, the actual
executors are the newly restructured hub organizations such as AIST, NEDO, and
MSTC under METI’s jurisdiction or supervision.
Moreover, Japanese industrial policy still reflects a strong assumption of a
clear development trajectory of industry and prediction toward near future from
bureaucrats’ linear plan rational rather than market rational. Therefore, for the worst,
Japan’s robotics industry might repeat the fate of its IT industry and its aircraft
industry might still remain ready-to-take-off piecemeal status. Sixth, the overall
defense-related industrial structure still tends to value cooperation rather than
competition, and emphasize advanced production rather than innovation. In addition,

404
the government’s artificial markets are too small and weak to provide sufficient
market incentives and scale of economy. For the worst, Japan’s aircraft industry
might forever be the best 2
nd
and 3
rd
tier supplier and its robotics industry might
repeat the fate of its aircraft industry. And the last, the private makers of both
industries will keep challenging the government’s policy in maintaining the outdated
weak military arrangement and the government will have to deal with increasing
pressure and rearticulate its policy from time to time.
Although Japan’s recent decisions and moves have implied a possible grand
strategy shift and structural transformation of the outdated postwar self-imposed
weak military market structure, namely the 1992 PKO act, the 1997 U.S.-Japan
Guidelines for Defense Cooperation, the 2004 overseas deployment of Self-Defense
troops without U.N. agreement, the 2007 establishment of MOD, and the 2008
revised Space Basic Law, however, the future heading of Japan is still under intense
domestic debates and thus is highly uncertain. In addition, the possible relax of arms
export ban in the end of 2009 will be a major move for Japan since the end of WWII.
By relaxing the arms export control and allowing its industry (including robotics and
aircraft industries) to export military technology and weapon systems to the large
global market, Japanese government will inject a strong cardiac stimulants to its
post-bubble stagnated economic and industrial development. Moreover, the possible
halfway lift, again, reflects Japan’s calculation in balancing economic and industrial
development, overall national security and other considerations to maximize the well
being of Japan as a whole with government domination. In sum, whether Japan is

405
undergoing a fundamental grand strategy shift and an overall structural
transformation is still highly uncertain, however, two things we can be sure of. First,
Japan has to release itself, more or less, from the postwar self-imposed weak military
market structure for better fit in current more dynamic international environment.
Second, the bureaucrats will still dominate the policy-making process with their
increasing regulatory powers.
In conclusion, for the very existence of Japan’s weak military market
structure, Japan simply cannot converge to U.S. liberal market model or to any
others. Japan has to have a different political economic system, take different
development path, and utilize different strategy in its way to rich nation and strong
army.

5.6 CONTRIBUTIONS AND LIMITATIONS

5.6.1 Contributions to Comparative Political Economy
The first contribution of this study is to provide a different perspective to
look at Japanese industrial policy based on the elites’ market failure mentality. It
utilizes cultural analytical framework to investigate the impacts of informal
institutions on the establishment and exercise of formal institutions of Japan’s
political economy. More specifically, the elites’ market failure mentality has affected
the formulation of Japanese industrial policy which characterizes Japan different to
other industrialized countries. Thus, the theory generated from this study redefines

406
Japanese industrial policy as a product of the elites’ market failure mentality. It
further uses this market failure mentality as the main variable to discuss Japanese
industrial policy in promoting robotics and aircraft industries in the post-bubble era.
In addition, it contributes to the studies of Japan’s political economy by
comprehensively reviewing current literatures and conducting two case studies in
detail. This research surveys and analyzes early development, current status,
development strategy, and the government’s industrial policies in promoting Japan’s
robotics and aircraft industries. Moreover, the major findings and conclusions of
these two case studies have also shed some possible implications to the development
of these two promising industries and Japan’s post-bubble political economy. For
example, one of the most important findings of this study highlights the virtue and
uniqueness of Japanese model. That is, Japan has successfully utilized industrial
policy to create artificial market incentives in supporting the development of
internationally competitive military-related technology/industry without a healthy
military market and large military investment. While other countries are investing
and depending heavily on military market/budget for technological innovations and
military capabilities, Japan has showed the world a different path to achieve similar
results. And this achievement provides the studies of political economy with an
anomaly worth of investigating.
Furthermore, this study also supplements the market failure studies of
political economy and economics by highlighting Japan’s postwar self-imposed
weak military market structure as a major factor to impact the institutional design

407
and industrial policy practice of Japanese capitalism. In addition, the theory of this
study looks at Japanese industrial policy by linking industrial, political, economic,
and national security perspectives rather than from purely economic or industrial
aspects, to better understand the logic behind government’s intervention and
industrial policy as well as the changes of Japan in the post-bubble era.
Finally, the findings, conclusions, and theory drew from this research might
also be applicable to industries in nations with different preferences. In other words,
the impacts of market failure mentality and various market imperfections to the
institutional arrangements of a nation’s political economy are valid as this
dissertation and many scholars suggest. Take the development of aircraft industry in
Russia, China, Taiwan, Korea, Japan, France, and the U.S. for examples, there is a
positive correlation between market failure mentality and the current industrial
structure (Table 5-3). In countries with higher market failure mentality such as
Russia and China (communist regime background), it is the governments control the
aircraft industry with the establishment of public corporations. For example, the
Aviation Industry Corporation of China (AVIC) is the largest Chinese aircraft
manufacturer. It is a state-owned company of aviation industry, both military and
civilian. On the other hand, United Aircraft Corporation (UAC) is a Russian
government-owned corporation to consolidate aircraft construction companies and
state assets engaged in the manufacture, design and sale of military, civilian,
transport, and unmanned aircraft. It was created in February 2006 by merging Sukhoi
Corporation, Mikoyan, Ilyushin, Irkut, Tupolev, and Yakovlev.

408
In addition, in countries like Taiwan and South Korea (authoritarian regime
background) with medium-high market failure mentality, the states tend to dominate
the industry with public corporations, however are on their way to privatization. For
example, Korea Aerospace Industries Ltd. (KAI) is a South Korean national
aerospace company established in 1999 with the consolidation of Samsung
Aerospace, Daewoo Heavy Industries, and Hyundai Space and Aircraft Company.
And Taiwan’s Aerospace Industrial Development Corporation (AIDC) is a
government-owned company under the authority of the Ministry of Economic
Affairs. Its major goal is to satisfy Taiwan’s self-reliant defense needs but has turned
from solely military applications to a diversified provider to both military and
commercial markets. And in countries with lower market failure mentality such as
France and the U.S., private corporations have dominated the industry and the states
play the role as protector and sometimes as promoter with minimalist and market-
supporting regulatory structure. Moreover, the theory is drawn from Japan’s robotics
and aircraft industries, mainly for their dual-use character in order to stand out the
impacts the weak military market structure on Japan’s political economy. However,
the applicability of the theory is not limited in defense-related industries. For
example, the theory can also be applied in IT, biochemical, and alternative energy
industries with similar results and conclusions.

409
Table 5-3: Market Failure Mentality and Industrial Structure

Nations

Factors
China Russia Taiwan Korea Japan France U.S.
Market
Failure
Mentality
High Medium-High Medium Low
Role of State Boss, Controlled
by Oligarchs;
Half Boss & Half
Partner;
Partner, Promoter,
& Protector;
Protector & Sometimes
Promoter
Government-
Business
Relationship
Internalized; Semi-Internalized; Separated but
Tight Relations;
Separated and
Interdependent;
Organization
of Business
Giant Public
Corporation;
Big Business Dominance, Bank
Financing with State Guidance, Close
Cooperation with State as Mediator;
Independent Giant
Corporations;
Economic
Culture
Zero-Sum
Economic Culture,
Low
Entrepreneurialis
m
Skepticism of Free market, Support for
State Intervention, Paternalistic
Collectivism;

Individualistic,
Entrepreneurial;

5.6.2 Limitations of This Study
In addition, there are several other weaknesses and limitations of the theory
generated from this study. First, it has primarily concentrated on Japan’s industrial
policy and industrial structure to picture the overall change of Japan in the post-
bubble era. It does not investigate comprehensively and deeply from such as
financial, economic, and social perspectives, which might result in relatively narrow
conclusions. However, as industrial policy is the core element of Japanese capitalism
and also characterizes Japan different to other western industrialized nations,
therefore, this research is still able to draw on some tentative and persuasive

410
conclusions and predictions toward the development of Japan in the post-bubble era.
Second, my theory does not focus on social groups and classes competing within the
political system. Therefore, it is not able to explain societal policy inputs in altering
government decisions and policies. For example, the social movement of
environment debacle in the early 1970s forced MITI to change its industrial policy
orientation by adopting strict environment policies, promoting knowledge-intensive
industries, developing new energy technologies, and also exporting high-pollution
industries to South East Asia. And it also made MITI’s intervention become more
informal in promoting industrial development.
Third, the theory also underestimates the impacts of external inputs and
market forces, such as globalization and trade relations, in affecting the government
institutions and policies. For instance, the long-term unbalanced trade relations and
the heavy pressure from the U.S. government in the 1980s forced MITI to gradually
relax foreign exchange control and liberalize some industries. Meanwhile, Kohno
points out that the trend of globalization has been pushing the transformation of
Japan’s political economy structure.
347
And MITI was the first among the Japanese
government departments to recognize the internationalization pressure and firmly
commit to liberal reforms and deregulations. Forth, one of the inherited weaknesses
of cultural analysis is the difficulty in evaluating the degree of shared belief, value,
and understanding which evolves with time and major events of a nation. Therefore,

347
Masaru Kohno, “A Changing Ministry of International Trade and Industry,” in Jennifer Amyx and
Peter Drysdale, eds. 2003. Japanese Governance: Beyond Japan Inc. London and New York:
RoutledgeCurzon.

411
the two case studies of this dissertation are not sufficient to sustain this market
failure mentality theory. More studies on other industries in different nations are
necessary to establish comprehensive criteria of market failure mentality in order to
increase the theoretical applicability.
Fifth, the approach of this study starts from the investigation of informal
institutions and center on the impacts of the government’s policies and actions in
affecting Japan’s economic performance. Therefore, it can not fully explain some
corporate behaviors, such as the cases of Honda and Toyota in the face of METI’s
industrial policy in promoting robotics industry, unlike Hall and Soskice’s varieties
of capitalism approach.
348
They regard companies as the crucial actors in a capitalist
economy and place them in the center of their analysis. Hall and Soskice believe that
“They are the key agents of adjustment in the face of technological change or
international competition whose activities aggregate into overall levels of economic
performance.”
349
Moreover, unlike rational choice models, this theory can not explain
the behaviors of individual rational actors (such as rent seeking) and the goals they
are pursuing based on cost-benefit analysis. For example, Vogel argues that as
bounded by existing institutions’ incentives and constraints, both Japan’s public and
private elites have engaged in a fairly sophisticated process based on their own cost-
benefit calculation in evaluating the relative costs and benefits of existing institutions

348
Peter A. Hall and David Soskice, eds. 2001. Varieties of Capitalism: The Institutional Foundations
of Comparative Advantage. Oxford: Oxford University Press.

349
Ibid, pp. 6-7.

412
and then designed reform items to reduce the costs and enhance the benefit.
350
Thus,
he concludes that these calculations have largely shaped the substance and trajectory
of reforms, which have modified and reinforced existing institutions rather than
fundamentally transforming to liberal market model.
In addition, the theory assumes that there is a set of shared belief, value, and
understanding among elites which shapes the formulation and exercise of formal
institutions. However, it can not explain the bureaucrats’ sectionalism and
jurisdiction disputes among different government organizations from functionalist
perspectives. It also does not highlight the activeness of private actors in shaping
government decisions during policymaking process. For example, Calder focuses on
the fractures inside the Japanese industrial policymaking system.
351
He argues that
the capacity of the state to strategically allocate capital has been constrained by
rivalries within the state (especially between MITI and MOF) and by nature of the
private sector, the influence of party politicians, and occasionally by foreign actors.
Finally, the theory does not capture the dynamic interactions between public and
private sectors and the structure of incentives and constraints that induced particular
national market logics within Japan. It also does not catch the characters of strategic
competitions among Japan and other countries in the world markets.

350
Vogel tries to incorporate norms and social ties into his three circles of rationality in a cost-benefit
framework: 1) Simple cost-benefit analysis, 2) institutional cost-benefit analysis, and 3)
social/reputational cost-benefit analysis.

351
Kent E. Calder. 1993. Strategic Capitalism: Private Business and Public Purpose in Japanese
Industrial Finance. Princeton, N.J.: Princeton University Press. pp. 14-16.

413
5.7 CONCLUSION
To take a balance or retrospective view, there is no single definite path or any
superior political economic model to prosperity since all systems have both strengths
and inherited flaws at the same time. Therefore, the important question to ask is
whether a nation’s political economic structure and development strategy could
better represent its unique social environment and respond to its societal preferences.
In other words, the way to prosperity of each country is fundamentally different and
deeply embedded in their unique social environment. In addition, every nation is
learning by doing rather than knowing the correct and clear path ahead. The 2008
U.S. financial crisis is a clear example and lesson for all of us in the fields of
political science and political economy. With luck we are past the point that any
single model is touted as the only path and nations can and do pursue diverse paths
to prosperity in the global economy. And I believe that is the true value of social
science and exactly where the fun of research lies.
Since the collapse of Soviet Union, Japanese capitalism is considered as the
only alternative standing contrast to Western liberal free-market model. Recent
developments in Japan do not show a clear sign that Japan is undergoing a
fundamental transformation to the U.S. free-market model. Japan today is not the
same as it was before 1990s. For instance, its market and economy are less regulated
and more open. However, its core political and economic institutions, practices, as
well as fundamental mentality and logic of development have changed only slightly.
And Japan’s approach to market deregulation has still followed a distinctively

414
Japanese mentality and logic and maintained a role for government to stabilize the
new market configurations. On July 14
th
2006, Japan terminated its zero interest rate
(as an important sign of terminating deflation) and its economy has started to recover
since then. However, again, for better or worse of Japan’s future development, there
are still a lot for us to learn and explore in order to make more contributions to the
studies of political science.

415
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438
APPENDIX A: FIELD RESEARCH ACTIVITIES, 2005-2008
Date Field Research Activities
2005
June 10-17 Aichi World Exposition, Robot Island, and Prototype Robot Exhibition
Special Event (Nagakute Town, Toyota City, and Seto City) observation, data
collection, and interviews with NEDO, MSTC, NEC, Toyota, Honda, Hitachi,
Mitsubishi, and Fujitsu on their service robots and the government’s 21
st

Century Robot Challenge program.
September 01 Honda: Interview and data collection on Asimo and HRP project.
September 02 MSTC: Interview and data collection on HRP project, and asked for other
public and private references.
September 05 NEDO: Interview and data collection on the HRP and the 21
st
Century Robot
Challenge program, and asked for public and private references.
September 09 Sony: Interview and data collection on Qrio robot and HRP project.
2006
April 25 METI Industrial Structure Shingikai 21
st
Sub-meeting of Aerospace Industry
April 25 METI: interview and data collection on 21
st
Century Robot Challenge
program and overall robotics industry promotion policy, and asked for public
and private references.
April 28 AIST: interview and data collection on HRP, 21
st
Century Robot Challenge
program, as well as other public robotics projects, and asked for private and
academic references.
May 4 MSTC: interview and data collection on robotics industry
May 8 NEDO: interview and data collection on robotics industry
May 12 Honda: interview and data collection on robotics industry,
May 12 Honda: Asimo robot demonstration
May 18 Sony: interview and data collection on robotics industry
May 24 METI Industrial Structure Shingikai 22
nd
Sub-meeting of Aerospace Industry
June 13 METI Industrial Structure Shingikai 23
rd
Sub-meeting of Aerospace Industry
June 16 Kawada Industries: interview and data collection on robotics industry
July 20 METI/NEDO Robot Technology Strategy Map 2006 Conference
July 20 AIST: interview and data collection
July 31 METI Industrial Structure Shingikai 24
th
Sub-meeting of Aerospace Industry
August 02 NEDO: interview and data collection on aircraft industry
August 04 MSTC: HRP robot observation and interviews with engineers
2007
April 09 METI Industrial Structure Shingikai Sub-meeting of Industrial Technology
19
th
Research and Development Committee
April 09 METI: interview and data collection on aircraft industry
April 12 NEDO: interview and data collection on robotics and aircraft industries
May 07 JARA: interview and data collection on robotics industry
May 22 MSTC: HRP-3 humanoid robot public demonstration
July 06 Tsukuba University: interview and data collection on robotics industry
July 11 METI Industrial Structure Shingikai Sub-meeting of Industrial Technology
20
th
Research and Development Committee
August 10 MSTC: Interview and data collection on aircraft industry
August 29 METI/NEDO Robot Technology Strategy Map 2007 Conference

439
2008
March 17 METI: interview and data collection on aircraft industry
May 07 MSTC: interview and data collection on both robotics and aircraft industries
May 16 METI Industrial Structure Shingikai Sub-meeting of Industrial Technology
23
rd
Research and Development Committee
June 18 Association for Market Creation of the Future Generation Robot Conference,
interview with Tmsuk (Mr. Yoichi Takamoto) and ZMP, and data collection
July 14 NEDO: interview and data collection on aircraft industry
July 18 METI/NEDO Robot Technology Strategy Map 2008 Conference
August 21-24 2008 Taipei International Robot Show, Taiwan, data collection, observation
and interviews with KHI and Fujitsu
September 10 METI Industrial Structure Shingikai Sub-meeting of Industrial Technology
24
th
Research and Development Committee
October 4-5 2008 Japan International Aerospace Exhibition in Yokohama, data collection,
observation and interviews with SJAC, JADC, MHI, KHI, FHI
October 11-12 2008 National Museum of Emerging Science and Innovation Robotics
Technology Special Event, observation, data collection and interview with
JST
Nov. 11-12 TRDI 2008 Defense Technology Symposiums in Tokyo, observation, data
collection and interviews with TRDI officials
Nov. 26-28 2008 International Next-Generation Robot Fair, ICRT Japan 2008 in Osaka,
observation, data collection, and interviews with IRS president, Mr. Tadokoro
Satoshi.
December 13-14 Robot AI Software Platform Public Demonstration in Osaka Universal City
Walk: observation, data collection, and interviews with ATR, Toshiba, NTT,
MHI, and Honda
December 18 The Robot Award 2008: observation, data collection, and interview with
JAMSTEC

440
APPENDIX B: NEDO’S MAJOR R&D PROJECTS IN 2008
Fields and Projects Period 2008 Budget
1. ELECTRONICS AND INFORMATION TECHNOLOGY
(1) Semiconductor Technology

Next-generation semiconductor materials and process
technology (MIRAI) project
2001-2010 3.85 billion
Development of comprehensive optimization technologies to
improve mask design, drawing, and inspection
2006-2009 650 million
Development of advanced control technology for use in state-
of-the-art SoC manufacturing systems
2007-2010 500 million
Development of next-generation process-friendly design
technologies
2006-2010 890 million
Development of functionality Innovative Three-dimensional
Integrated Circuit (Dream Chip) Technology
2008-2012 1.2 billion
Development of Inverter Systems for Power Electronics 2006-2008 860 million
Semiconductor Application Chip Project (Information
Appliance Field)
(2005-2009 1.4 billion
(2) Storage Memory Technology

Spintronics Nonvolatile Devices Project 2006-2010 520 million
Development of Nanobit Technolgoy for Ultra-high Density
Magnetic Recording (Green IT Project)
2008-2012 950 million
(3) Network Technology

Development of Next-generation High-efficiency Network
Device Technology
2007-2011 1.04 billion
(4) Usability Technology

Development of Novel Nanophotonic Devices 2006-2010 440 million
Development of High-efficiency Lighting Based on the
Organic Light-emitting Mechanism
2007-2009 360 million
Development of Basic Technology for Next-generation Energy-
saving Large-screen Plasma Displays
2007-2011 390 million
Development of Basic Technology for Next-generation Energy-
saving Large-screen Liquid Crystal Displays (LCD)
2007-2011 780 million
Development of Basic Technology for Next-generation Large-
screen Organic Light-emitting Diode Displays (OLED, Green
IT Project)
2008-2012 700 million
2. MACHINERY SYSTEMS TECHNOLOGY
(5) New manufacturing and robot technologies

Highly Integrated, Complex MEMS (Microelectromechnical
system) Production Technology Development Project
2006-2008

830 million

Project for Strategic Development of Advanced Robotics
Elemental Technologies
2006-2010 800 million

Intelligent Robot Technology Software Project 2008-2011 1.5 billion
Project for Open Innovation Promotion by Utilizing Basic
Robotics Technology
2008-2010

100 million
Project to Support the Transfer of Key Small and Medium
Enterprise Technologies
2006-2008

150 million

441
(6) Welfare Equipment and Other Technologies

Promotion of R&D on Practical Welfare Equipment 1993-Open 110 million
Collection, Analysis, and Distribution of Information on
Medical and Welfare Equipment
1993-Open 30 million
3. AIRCRAFT AND SPACE TECHNOLOGIES
(7) Aircraft

Research and Development on Technology Related to an
Advanced Flight Control System
2008-2013 5 billion
Research and Development for an Environment-friendly Small
Aircraft Engine
2003-2010 600 million
(8) Space

Development of Fundamental Technologies for Next-
generation Satellites
2003-2008

Research and Development Relating to the Use of Electronic
Parts in Extreme Environments
1999-2010 490 million
High-performance Hyperspectral Sensor R&D Project 2007-2011 1 billion
Research and Development of a Small-sized Advanced Space
System
2008-2010 600 million
Development of Fundamental Technology for Designing a
Next-generation Transportation System
2002-2010 620 million
4. NANOTECHNOLOGY AND MATERIALS TECHNOLOGY
(9) Acceleration of Nanotechnology

Research and Development of Nanodevices for Practical
Utilization of Nanotechnology
2005-2012 3.65 billion
(10) Information and Telecommunications

Development of Nitride-based Semiconductor Single Crystal
Substrate and Epitaxial Growth Technology
2007-2011

500 million
High-efficiency Processing Technology for Three-dimensional
Optical Devices
2006-2010

360 million

Infrastructure Development of Evaluate Next-generation
Advanced Component Development
2006-2008

150 million

Technological Development of Superflexible Display
Components
2006-2009

620 million

(11) Energy, Resources, and Environment

Development of Sustainable Hyper Composite Technology 2008-2012 320 million
Development of Multiceramic Film for New Thermal
Insulators
2007-2011 320 million
Carbon Nanotube Capacitor Development Project 2006-2010 400 million
Advanced Ceramic Reactor Project 2005-2009 450 million
Rare Metal Substitute Materials Development Project 2008-2011 1 billion
Technological Development for a Next-generation Highly-
reliable Gas Sensor
2008-2011

100 million

Development of Microspace and Nanospace Reaction
Environment Technology for Functional Materials
2006-2010

520 million

(12) Material and Components

442
Technological Development of Innovative Components Based
on Enhanced Functionality Metallic Glass Composites
2007-2011

340 million

Technological Development of Ultra-hybrid Materials
(Technological Development of Contradictory Functional
Materials by Nano-scale Structure Control)
2008-2011

620 million

R&D on Fundamental Technology for Steel Materials with
Enhanced Strength and Functionality
2007-2011

1 billion

Forged Magnesium Parts Technological Development Project 2006-2010 270 million
Basic Technology Development for Fiber Materials Having
Advanced Functions and New Structures
2006-2010

710 million

Next-generation Nanostructured Photonic Device and Process
Technology
2006-2010

290 million

5. BIOTECHNOLOGY AND MEDICAL TECHNOLOGY
(13) Biotechnology for Health Care

Translational Research Promotion Project 2007-2011 2.25 billion
Development of Basic Technology to Control Biological
Systems Using Chemical Compounds
2006-2010

1.92 billion

Development of New Functional Antibody Technologies 2006-2010 1 billion
Development of Basic Technology for Protein Structure
Analysis Aimed at Acceleration of Drug Discovery Research
2008-2011

880 million
Development of Practical Biological Diagnosis Tools 2006-2008 350 million
Technological Development for Chromosome Analysis 2006-2008 340 million
Development of Analysis Technology for Gene Functions with
Cell Arrays
2005-2009

270 million

Development of Technology to Create Research Model Cells 2005-2009 600 million
Development of Novel Diagnostic and Medical Applications
through Elucidation of Sugar Chain Functions
2006-2010

1 billion

Functional RNA Project 2006-2009 820 million
(14) Medical Equipment Technology

R&D on Molecule Imaging Equipment for Malignant Tumor
Therapy Support
2005-2009

790 million

Project for R&D on Highly Accurate Fundus Imaging
Equipment
2005-2009 150 million
Project for R&D on Next-generation DDS Therapy Systems for
Deep Therapy
2007-2009

460 million

Intelligent Surgical Instrument Research and Development
Project (R&D of Instruments for Major Diseases)
2008-2011

520 million

Development of Evaluation Technology for Early Introduction
of Regenerative Medicine
2006-2009

160 million

Research and Development on Myocardial Regenerative
Medicine
2006-2009

280 million

R&D of Three-dimensional Complex Organ Structures 2006-2009 300 million
(15) Green Biotech

Development of High-efficiency Environmental Biotreatment
Technology Using Artificially Designed Microbial
Communities
2007-2011

160 million

443
Development of Basic Technologies for Advanced Production
Methods Using Microorganism Functions
2006-2010

940 million

Fundamental Technologies for Controlling the Material
Production Process of Plants
2002-2009

560 million

6. CHEMICAL SUBSTANCE MANAGEMENT
(16) Chemical Substance Management

Development of Technology for the Safe Recovery and
Treatment of Construction Materials Containing Asbestos
2007-2009

190 million

Development of a High-sensitivity Detector for Volatile
Organic Compounds
2005-2008

90 million

Development of Fundamental Technologies for Risk Reduction
of Hazardous Chemical Substances
2004-2008

490 million

Leading Study on Environmental Pollutant Control Technology 2008 100 million
Development of Simple and Highly Functional Hazard
Assessment Methods
2006-2010

250 million

Research and Development of Nanoparticle Characterization
Methods
2006-2010

370 million

Development of Methodologies for Risk Trade-off Analysis
toward Optimum Chemical Substance Management
2007-2011

110 million

Development of Hazard Assessment Techniques Using
Structure-activity Relationship Methods
2007-2011

180 million

Research on Biotechnologies for Safety Measures in the
Petroleum Industry
2005-2008

200 million

7. FUEL CELL AND HYDROGEN TECHNOLOGIES

(17) Fuel Cell and Hydrogen Technologies

Strategic Development of PEFC (Polymer Electrolyte Fuel
Cell) Technologies for Practical Application
2005-2009

5.57 billion

Strategic Development of PEFC Technologies for Practical
Application/Research on Nanomaterials for High Performance
Fuel Cells
2008-2014

1.1 billion

Fuel Cell Cutting-edge Scientific Research Project 2008-2009 900 million
Development of Highly Durable Membrane LPG Reformers
(Liquefied Petroleum Gas)
2006-2008

80 million
Development of System and Elemental Technology on Solid
Oxide Fuel Cells (SOFC)
2008-2012

1.35 billion

Fundamental Research Project on Advanced Hydrogen Science 2006-2012 1.75 billion
Advanced Research on Hydrogen Storage Materials 2007-2011 910 million
Development of Technologies for Hydrogen Production,
Delivery, and Storage Systems
2008-2012

1.7 billion

Establishment of Codes and Standards for Hydrogen Economy
Society
2005-2009

1.4 billion

Development of Standards for Advanced Application of Fuel
Cells
2006-2010

250 million

Demonstration of Residential PEFC Systems for Market
Creation
2005-2008 2.71 billion
Demonstrative Research on Solid Oxide Fuel Cells (SOFC) 2007-2010 800 million

444
Development of High-performance Battery System for Next-
generation Vehicles
2007-2011

2.9 billion

8. ENERGY AN DENVIRONMENT TECHNOLGOIES
(18) Technology for HFC, PFC, and SF6 Measures

Development of Non-fluorinated Energy-saving Refrigeration
and Air Conditioning System
2005-2009

580 million

Project to Support the Practical Implementation and
Application of Emission Control Equipment to Control Three
Fluorinated Gas Substitutes
2006-2008

3.1 billion

Project to Develop Innovative Non-fluorocarbon Heat
Insulation Technology
2007-2011

240 million

(19) Fossil Fuel Utilization Technology

Multi-purpose Coal Gasification Technology Development
(EAGLE)
1998-2009

2.32 billion

Development of Non-catalytic Coal Oven Gas Reformer
Technology
2006-2008

170 million

Strategic Technical Platform for Clean Coal Technology 2007-2011 180 million
Clean Coal Technology Promotion Program 1992-2008 90 million
Development of Environmental Technology for Steelmaking
Process
2008-2012

560 million
Innovative Zero-emission Coal Gasification Power Generation
Project
2008-2012

930 million
(19) 3R Technology

Development of Non-aeration and Energy-saving Next-
generation Water Resource Recycling Technology
2006-2008

80 million

Project to Create Photocatalyst Industry for Recycling-
orientated Society
2007-2011

880 million

(20) Photovoltaic and Wind Power

Field Test Project on New Photovoltaic Power Generation
Technology
2007-2014

6.33 billion
Development of Technologies to Accelerate the Practical
Application of Photovoltaic Power Generation Systems
2008-2009

200 million
Research and Development of Next-generation PV Generation
System Technologies
2006-2009

1.1 billion
R&D on Innovative Solar Cells 2008-2014 2 billion
R&D of Common Fundamental Technologies for Photovoltaic
Generation Systems
2006-2009

400 million
R&D of Next-generation Wind Power Generation Technology 2008-2012 210 million
R&D of Offshore Wind Power Generation Technology 2008-2013 200 million
Wing Power Generation Field Test Program 2006-2011 60 million
Advanced Solar Heat Utilization Field Test Project 2006-2013 300 billion
(21) Biomass and Waste

Development of Technology for High-efficiency Conversion of
Biomass and Other Energy
2004-2012

2.8 billion

445
Verification Tests and Results Survey for Biomass and Other
Untapped Energy
2002-2009

390 million

Local Biomass Heat Utilization Field Test Project 2006-2010 1.9 billion
Tests for Locally Systemized Biomass Energy 2005-2009 760 million
Project to Create a Standard Model for Regional Distribution of
E3
2007-2011

450 million

(22) Superconducting and Ultra-pure Metals

Technological Development of Yttrium-based Superconducting
Power Equipment
2008-2012

3 billion

High-temperature Superconductor Cable Verification Project 2007-2010 160 million
Development of Ultra High Purity Materials for Thermal
Power Plants
2005-2009

390 million

(23) Grid-connected Systems

R&D of Islanding Detection Testing Technology for Clustered
Photovoltaic Power Generation Systems
2008-2009

230 million

Verification of Grid Stabilization with Large-scale PV Power
Generation Systems
2006-2010

3.58 billion

Wind Power Stabilization Technology Development Project 2003-2008 200 million
Development of an Electric Energy Storage System for Grid-
connection with New Energy Resources
2006-2010

2.4 billion

Subsidy Project for Grid Interconnection of Wind Power
Generation
2007-2012

2.96 billion

(24) Energy Conservation Technology

Strategic Development of Energy Conservation Technology
Project
2003-2010

7.85 billion

Comprehensive Technological Development of Innovative,
Next-generation, Low-pollution Vehicles
2004-2008

550 million

Technological Demonstration Study on High-efficiency Natural
Gas Hydrate Production and Utilization Systems
2006-2008

290 million

R&D Project for Green Network/System Technology (Green IT
Project)
2008-2012

1.35 billion

Development of Energy-saving ITS (Intelligent Transport
Systems) Technologies
2008-2012

850 million

Development of Innovative Glass Melting Process
Technologies
2008-2012 350 million
Support Project for Industries for Increasing Efficient Use of
Energy
1998-2009

29.65 billion

Project for Establishing New Energy and Energy Conservation
Visions at the Local Level
1998-2010

900 million

Project for Promoting the Local Introduction of New Energy 1998-2012 4.15 billion
Project for Promotion of Non-profit Activities on New Energy 2005-2011 60 million
Project to Introduce and Promote New Energy Measures 2004-2012 90 million
Project for Promoting the Introduction of High-efficiency
Housing/Building Energy Systems
1999-2010

4.79 billion

Project for Developing Small and Medium-sized Hydroelectric
Power Plants
1999-2010

710 million

446
Project on Geothermal Power Generation Development 1999-2010 580 million
New Energy Introduction Support Project 2007-2012 5.76 billion
Geothermal Development Promotion Surveys 1980-2010 1.86 billion
(25) International Projects

International Project for Increasing the Efficient Use of Energy 1993-Open 3.96 billion
International Cooperative Demonstration Project Utilizing
Photovoltaic Power Generation Systems
1992-Open

980 million

International Cooperative Demonstration Project for Stabilized
and Advanced Grid-connection PV Systems
2005-2009

820 million

International Coal Utilization Projects 1993-Open 790 million
Total

232 Projects

447
APPENDIX C: NEDO’S 65 PROTOTYPE ROBOTS
Field # of
Robots
R&D Themes Robot Name
Human interacting robot with omni-
directional hearing functions
ApriAlphaTM

robot to follow people by multi-modal
interaction
Person Companion

Multi service robot system, sharing space
information based on Open-Arts
PAR04R
Hyper Robot System, unifying domestic
distributed robots, servicing people
Hyper Robot
ERRAND (Extremely Rapid Robot with
Anti-collision Device)
ERRAND
Arm Unit, movable in 7 directions SmartPal
Robot having software content
Robot system giving several services to
people
Momocchi
Service
Robot:
Network
Robotics, RT
Middleware
8
in a town, Environment Type robot Life Pod
Robot that draws pictures on pottery Picture Printer Robot
Robot that draws visitor’s portraits COOPER
Virtual-reality robot with many fingers, using
future science encyclopedia
HIRO (Haptic Interface
Robot)
Mutual tele-existence robot using recursion
nature projection technology
TELEsarPHONE
Robot encountering micro worlds µ-TAN Robot
Cyber Assist Mister Robot CAM Robot
Service
Robot:
Interaction
between
Humans and
Robot
7
Power Amplifying Robot (supporting man’s
work)
Man-Machine Synergy
Effector (MMSE)
Robot supporting forestry tasks WOODY-1
Robot talking a walk a natural feature Chari Be (series:
CHARIOT4)
Ubiquitous Robot WallWalker
3-piece robot (wheel-type) IMR-Type 1
Caddie Robot Candy-05
Robot ascertaining and extracting
contaminants at the time or NBC terrorism
Utility Mobile Search
Robot–Anti NBC Terror
(UMRS-NBCT)
Robot supporting rescue operations,
conducting heavy-duty operations
ENRYU T-52 Advance
Outdoor
Robot:
Skilled Work
8
Search Robot MOIRA2
Pipeline Diagnosis System Robot using the
shockwave method
Dr. Impact
Pacemaker robot for marathons ASKA
Next-generation intelligent wheelchair Intelligent Wheelchair
Outdoor
Robot:
Special
Environment
Work
10
Gold killer whale robot KINSHACHI Robot

448
Snow-removal robot Yuki-Taro
Batting Robot which can hit ball of speed
160km/hr
Batting robot
Snake-like robot moving on land and
underwater
ACM-R5
Acrobatic Flight Ship Robot AAR (Aerobatic Airship
Robot)
Kite-like robot for gathering information YAKKO KITE
FLYING ROBOT

Highly efficient flying robot OBK SkyEye 1&2
Robot corresponding to urgent relief
activities
Pre-hospital Robot
Precise Human Body Robot; used as medical
training tools, being the foundation of the
advanced latest medical treatment
Model Patient Robot,
EVE
Equipment and micro hand for medical
treatment, operations (recognizing and
displaying 3-D view, used at office, home,
and for medical treatment)
Micromanipulator Type-
1
Robot for remote, microscopic medical
operations
Micro Surgery Robot
Robot with 6 flexibilities for rehabilitating
upper-limbs (including wrists)
ROBOTHERAPIST
Barrier-free Robot Interface System,
supporting the handicapped, having super-
learning functions
CHRIS (Cybernetic
Human-Robot Interface
System)
Half-Autonomous Robot System for Self-
Care
Kitasap 2
Wearable Robot assisting muscles Muscle Suit
Robot Suit HAL Robot Suit HAL
Medical
Welfare
Robot
10
Partner robot with an artificial tongue Optical-tongue Robot
Android Robot interacting with humans and
nature
Repliee Q1 expo
Mechanism in which many different robots
cooperate
Robovie Family
Physical communication robot which
encourage children
InterAnimal
Robot used for scenario research, whose
authoring is possible
Reconfigurable Robot
with Authoring System
Next-Generation Communication Robot DAGANE (Dialogue
Agent Applied to
Navigation
Enhancement)
Mechanism in which many different robots
talk
ROBOVIE &
WAKAMURA
Dance Partner Robot PBDR (Partner
Ballroom Dance Robot)
Partner Robot 8
Artistic Robot J2 (Jumping Joe)

449
Autonomous control robot, walking with 6
limbs
STUDIOUS
Module type robot with ability to alter
physical structure (modular transformer)
M-TRAN III
Robot with arms and legs identical ASTERISK
Dog type robot moving platform which
demonstrates high athletic abilities outdoors
in emergencies
Tekken
Performance
Robot
5
Soft Robot, moves, crawl and jump KOHARO
HPR-2 investigative HRP-2 No.10 with
human supervision
HRP-2 with interaction Middleware HRP-2 human
interaction
HRP-2 with Software generating physical
impact operations
HRP-2 Impact Motion
Animatoronic Humanoid Robot UT-µ
Humanoid Robot with diverse flexibilities,
flexible backbone, which is physically
variable
Kotaro
Humanoid Robot for dynamic operational
research
KOZOH-4
Humanoid Robot supporting domestic chores NAGARA-3
Humanoid Robot for simulating human body
movement
WABIAN-2
Humanoid
Robot
9
Widely Dispersed Robot System united by
radio links “morph+WIND”
WIND Robot System
Total 65

Source: NEDO, 2005

450
APPENDIX D: IRS’ 50 RESCUE ROBOT SYSTEMS
R&D Leader Affiliation R&D Theme
Michita
Imai
Keio
University
- Development of a robot network system for refuge and
rescue work
Itsuki
Noda
AIST - Development of a system for temporary common use of
information at a disaster, using an ad hoc network
Kiyoshi
Komoriya
AIST - Autonomous Unmanned Helicopter
Shin’ichi
Yuta
Tsukuba
University
- Development of a system for generating an environment
model of a disaster site, based on cooperation between
remote-controlled mobile robots and an operator
- Development of a multi-sensors module head and its
sensory information display system for victims search under
collapsed buildings
- Research on an application of an autonomous mobile robot
to building security system for disaster management
Shigeo
Hirose
Tokyo Institute
of Technology
- Development of a throwing hyper tether for rescue work
- Development of a simple foot-operated power-generation
unit for driving a rescue apparatus
- Development of a snake-type robot for rubble-through
searching “SOURYU”
- Development of a pneumatic expansion arm for ruble-
through search
- Development of a hydraulically-driven multi-wheeled
mobile robot for rubble-through moving, “GENBU”
- Development of pneumatic multi-legged robot for
irregular-site running
- Development of a slime-type robot for rubble-through
searching which moves like an inch worm
- Development of a working-type crawler vehicle for
irregular-site travelling “HELIOS VII”
- Development of a jack for a car as a rescue unit
Fumitoshi
Matsuno
Tokyo Institute
of Technology
- Development of robots for gathering global and local
information in rubble environments
- Development of portable remote control system for 3D
information mapping by robots in rubble environment
Hajime
Asama
RIKEN - Development of Victim Search System using intelligent
data carrier for rescue
Tatsuo
Arai
Osaka
University
- Study on human-body searching in wide areas by
cooperation of multisensory units and mobile robots
Masahiko
Onosato
Osaka
University
- Research on GAREKI engineering for rescue work
- Research on an information balloon, the InfoBalloon”, for
victim support
Yasuhiro
Masutani
Osaka
University
- Development of a Standard Robotic Dummy for the
Purpose of Evaluating Rescue Equipment and Skill
Koichi
Osuka
Kyoto
University
- Development of an articulated-mobile-system for rubble
through searching

451
Yasuyoshi
Yokokohji
Kyoto
University
- Development of a generation method of a 3D map of piled
rubbles, using a plurality of mobile robots
- Development of a mobile camera system for searching
victim by remote control, and its display interface
Toshi
Takamori
Kobe
University
- Research project on victims searching systems using a
group
Of mobile robots in large-scale disaster
Satoshi
Tadokoro
Kobe
University
- Proposal of software and improvement of hardware, based
on evaluation testing of commercial robots at testing fields
- Development of distributed small-scale system to collect
information, which has abilities to send and to transmit
information
- Information collection from sky by a portable Cable-
Driven Robot
- Evaluation of commercially available robots in test fields
- Small-size distributed information collection/transfer
system
Hisanori
Amano
NRIFD - Research on basic technologies required for searching for
victims to be rescued, who have been left alone under
rubbles
Hiroaki
Nakanishi
Kyoto
University
- Development of an intelligent aero-robot for disaster
prevention
Kuniaki
Uehara
Kobe
University
- Development of a next-generation type of information
technology for disaster
Yutaka
Shimogaki
Asia Air Survey
Co., Ltd.
- Research on the 3D data acquisition system integrated with
mobile robots for disaster contingency planning
Hideyuki
Tsukagoshi
Tokyo Institute
of Technology
- Jumping and rotating inspector to improve drastically the
traverse ability on debris
Kenzo
Nonami
Chiba
University
- Development of a disaster-site support system by an
autonomous robot with crawler and legs, and an autonomous
radio-controlled helicopter
Koichi
Suzumori
Okayama
University
- Development of a power micro-robot for narrow-space
moving
Shugen
Ma
Ibaraki
University
- Development of a 3D snake-like robot based on 3 DOF
joints
Tetsuya
Kimura
Nagaoka
University of
Technology
- Development of a searching robot in rubble with a tethered
information collection robot
Takayuki
Nakamura
Wakayama
University
- Study on situation display system which eposes to view
visual and auditory information
Kenjiro
Miura
Shizuoka
University
- Environment recognition of buildings and plants for mobile
Robots in disaster
Keiji
Nagatani
Okayama
University
- Research on localization and mapping for crawler type
mobile robot in irregular site
Iwaki
Akiyama
Shonan Institute
of Technology
- Research on sensing of human being by Ultra Wideband
(UWB)
Takumi
Hasizume
Waseda
University
- Development of the forward-looking hemispheric vision
for reconnaissance and surveillance operation

452
Kenji
Kawashima
Tokyo Institute
of Technology
- Construction Machinery Operating System using
pneumatic artificial rubber muscles
Xin-Zhi
Zheng
ASTEM - Development of human-machine interface in disaster
purposed search robot systems that serve as surrogates for
human
Tomoharu
Doi
Osaka Prefectural
College of
Technology
- Research and development of a simple and popular type
rescue apparatus for searching, which is adapted for a social
system, considering marketable production of the apparatus
Osamu
Takizawa
Communications
Research
Laboratory
- RF-ID based emergency information gathering and
delivery system

Source: IRS
Note: TIT, Tokyo Institute of Technology; RIKEN, Institute of Physical and Chemical Research;
NRIFD, National Research Institute of Fire and Disaster; ASTEM, Advanced Software Technology
and Mechatronics Research Institute of Kyoto.

Abstract (if available)

Abstract Industrial policy has long been considered as one major contributor to Japan’s postwar economic miracle. It characterizes Japan different to other industrialized nations in terms of organizing its economy. However, the confusing definition of industrial policy has made discussion difficult. I argue that industrial policy is a product of Japanese elites’ market failure mentality. It simulates artificial market forces to promote strategic industries in countering the structure constraints for Japan as a late industrializer and lacks of natural resources. Moreover, the postwar self-imposed weak military structure has affected Japan’s industrial development and produced several problems. On the other hand, the elites’ market failure mentality has also shaped the substance of Japan’s reforms in the 1990s. Thus, the reforms have created many institutional innovations to enhance existing institutions. As such, the post-bubble industrial policy has utilized these institutional innovations to create more artificial market incentives in countering market imperfections in Japan’s robotics and aircraft industries. In sum, for the existence of market failure mentality and weak military market structure, Japan has adopted different institutions and strategy on its way to prosperity.

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Asset Metadata

Creator Kuo, Yujen (author)

Core Title Market failure mentality in Japanese industrial policy: case studies of robotics and aircraft industries

School College of Letters, Arts and Sciences

Degree Doctor of Philosophy

Degree Program Political Science

Publication Date 11/11/2009

Defense Date 09/25/2009

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag aircraft,artificial market forces,industrial policy,market failure mentality,OAI-PMH Harvest,postwar self-imposed weak military market structure,robotics

Place Name Japan (countries)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Shipper, Apichai W. (committee chair), Katada, Saori N. (committee member), Sellers, Jefferey M. (committee member)

Creator Email yujenkuo@earthlink.net,yujenkuo@usc.edu

Permanent Link (DOI) https://doi.org/10.25549/usctheses-m2729

Unique identifier UC1133035

Identifier etd-Kuo-3354 (filename),usctheses-m40 (legacy collection record id),usctheses-c127-276067 (legacy record id),usctheses-m2729 (legacy record id)

Legacy Identifier etd-Kuo-3354.pdf

Dmrecord 276067

Document Type Dissertation

Rights Kuo, Yujen

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Repository Name Libraries, University of Southern California

Repository Location Los Angeles, California

Repository Email cisadmin@lib.usc.edu