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Emerging Technology Report #3: April 24, 2002

U.S. Regional Initiatives: What will Japan Learn?

Louis Ross (Director, Global Emerging Technology Institute, New York)

As the U.S. economy became more of a 'service economy', it became clear that a country could not service its way to increased economic growth. Services are built around industries that produce economic growth, such as those based on cutting edge innovation and/or advanced manufacturing. Engines of economic growth are derived from breakthroughs in technology, which lead to the proliferation of high-wage jobs from which services sectors cluster around and benefit from. The development of a service sector is meant to be established afterward. The later is dependant on the former for survival.

The fast growing Chinese economy is experiencing the benefits of the use of more advanced technology and an increase in its manufacturing base. The inexpensive labor fuels this growth. In Japan, engines of growth are still advanced heavy industry, though the service part of the economy has grown and some manufacturing is being transplanted to low-wage countries such as China. Japan still maintains its strong focus on R&D in order to maintain its edge in high-value added technology development. The inability or simple disinterest in the United States in retaining an indigenous ability to produce machinery, equipment and other goods which tends to employ a lot of people, puts a great deal of pressure on the U.S. to keep up in the high-technology innovation area. This includes the production of substantive intellectual property, the kind which can lead to profitable commercialization and defendable business ideas. The U.S. challenge becomes even more daunting when it is an absolute necessity to continue to attract highly skilled workers from overseas. The U.S. economy became increasingly dependant on highly-skilled foreign tech workers perhaps due mostly to cultural reasons. The freedom of these workers to thrive in the U.S. led the country to benefit greatly and increased the valuable flow of these people into U.S. graduate programs, large companies and venture firms. It appears as if Japan, on the same lines, needs to follow the path of the U.S. in terms of maintaining its current competitive position if the trend of re-locating manufacturing to China continues. Government initiatives to revitalize regions must include efforts to promote the importation of highly-skilled foreign labor and flexible capital markets that include a thriving private equity market. Government initiatives need to take into account what has worked in the U.S. and be flexible in its interpretation of what is important in terms of maintaining Japanese cultural norms.

Many U.S. states and cities are desperate to house the next burgeoning, next-generation, next-century industrial sector. They are plowing federal and state monies, including generous tax-breaks, into key sectors in the hope that they will ignite growth. For example, there are approximately 40 regions, including cities, in the U.S. that would like to foster some type of biotechnology sector. Each region wants to become a hub for biotechnology, or a home for MEMS. A great deal is at stake. Smart U.S. states that have the cultural flexibility, are passionate and can attract the skilled labor, often of foreign origin, to man these sectors will succeed. Infrastructure to support these initiatives and follow-up are also very important ingredients of success. Many cities are promoting public/private sector initiatives that support venture companies and facilitate the movement of university technology from university technology licensing center to venture companies, and often they are building the ideas for companies around the technology.

In the U.S., a growing, relatively sophisticated infrastructure is being developed to support emerging technology companies. This trend was initiated well before the frenzy, though it is relatively new. The lost decade of the 1990s in Japan was a decade in which private equity and venture capital investing went mainstream, becoming a vital part of asset allocation decisions of large institutional investors. With this in place, there was more of a chance of regional public/private sector collaborative efforts, including federal and state funding, to flourish. The initiatives vary with the region and the type of technology that each state seeks to specialize or build an economic hub around and the availability of investment angels and venture capital propel start-up firms beyond the concept stage. Of course, large 'anchor' companies, original equipment manufacturers and the like, are also a necessity if a region is to develop expertise and competitiveness. Necessity will lead to more cooperation, which should increasingly include collaborations with overseas counterparts. Just as highly-skilled foreign labor help to fuel the U.S. IT boom and assists in the development of new emerging technologies, that same labor will increasingly in the future do the same thing outside of the U.S. Japan will do well in considering the U.S. example and though exact emulation is impossible, making adjustments to the current status quo would certainly be a wise decision.

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