Reviving entrepreneurship in Japan is no impossible dream. We know this for two reasons: 1) entrepreneurship had previously flourished in Japan, and 2) there are a number of important trends in the labor market, technology, generational changes in attitudes and gender relations all pointing in that direction.

Japan used to be the land of entrepreneurship. Half of the 1,700 nonfinancial companies on the stock market in 1989 had been created after WWII. Of the 120 large electronics hardware firms in 1979--those with at least 300 employees--nearly half had still been SMEs in 1955. Moderately large challengers like Seiko and Sharp could become giants. Contrary to conventional wisdom, they didn't just implement Western technologies, but "bet the company" by spending lots of money on uncharted new technologies, e.g., the microwave oven, the LCD screen for digital watches and hand-held calculators, the C-MOS chip developed by Sharp that later made Toshiba a pioneer in laptops.


Unfortunately, institutions stultified, and Japan lost its entrepreneurial edge, including the ability of newcomers to supplant older firms that had lost their mojo. Of the two dozen top hardware manufacturers in electronics today, not a single one was created after 1946 when SONY and Casio were founded. That's true of all sorts of industries, from chemicals to printing to department stores, etc., etc., etc. Government policies support incumbents, both large and small, over newcomers. For example, only about 10% of Japan's financial aid to R&D goes to companies with fewer than 500 employees, the worst level in the OECD. It's far harder for newcomers to get bank loans than elsewhere in the OECD.


Nonetheless, there are lots of very encouraging trends, which, if nurtured by policymakers, could revive Japan's past entrepreneurial traditions. One of the biggest problems would-be entrepreneurs point to is difficulty in recruiting. But this has become far easer than a couple decades ago. People in their 20s and 30s are far more willing to change jobs, especially those with skills in IT and other valued occupations. Talented women unable to get promoted in traditional companies are flocking to new challengers. At the same time, e-commerce has enabled SMEs to bypass the old distribution system and have greater access to customers. One furniture maker with just $1 million in sales in 2002 went on Rakuten and by 2019 enjoyed $160 million in sales.


When people hear the word entrepreneur, they think of Silicon valley and venture capital. But that's a very thin slice of entrepreneurship. There are just 2,000 high-tech firms in Silicon Valley. There are 50,000 American high-growth SMEs, i.e., firms that have grown at least 20% per year for three years in a row. A small minority in high-tech. There are 16,000 in Korea, 13,000 in the UK, 10,000 in France. We don't know how many there are in Japan because the government does not measure this.


I'll be having a "Zoominar" conversation with Ulrike Schaede about all this next week: 4:30 pm June 8^th California time; 8:30 am, June 9^th Japan time. You can register at: https://ucsd.zoom.us/webinar/register/WN_rQNsAg-6SHah9Kl_MMcM_A <https://ucsd.zoom.us/webinar/register/WN_rQNsAg-6SHah9Kl_MMcM_A>