Leaders in Japan's government and business who see the deterioration of the country's commercial innovation believe the answer lies in funding more basic and applied research. That is part of the answer, as I discussed in previous posts. However, by itself, more research won't solve the problem. In a world where technology is for sale across borders, it matters less which country creates new technologies than which countries host lots of companies that are able to understand the science and exploit those innovations, whether they originate at home or abroad. Japan is a big laggard on this front.

When studies compare companies in Japan, the US, and the rest of the OECD to the 50 most efficient manufacturing companies in the world (output per unit of labor and capital), they find that America's companies on the stock market are keeping up with the 50 best, but Japan's companies lag far behind, even worse than other countries in the OECD. The top 50 countries in Japan match the world's best, by the rest on the stock market fall far behind. And it's even worse among the small and medium companies in Japan.

For details, see https://richardkatz.substack.com/p/company-ability-to-use-technology

Richard Katz, The Contest for Japan's Economic Future