introduction 



Japan's postwar research and development (R&D) 

 efforts have passed through several phases to bring the 

 nation to what may be called "relative parity" with the 

 United States. Almost all key aggregate indicators show 

 that Japan now expends money and supports R&D per- 

 sonnel in the same proportions as does the United States 

 when the size of the national economies and populations 

 are taken into account. In some instances, such as the 

 ratio of company-funded R&D to gross national product 

 (GNP) and nondefense R&D to GNP, Japan's perform- 

 ance has exceeded that of the United States for a number 

 of years. 



Given the Japanese postwar economic record, this 

 achievement is not surprising. What is remarkable, how- 

 ever, is that the rate of growth in Japanese R&D expend- 

 itures exceeded the high average annual increase in GNP 

 by more than 3 percentage points during the years 1965 

 to 1986. Such a financial commitment, coupled with Ja- 

 pan's strong emphasis on education, has enabled the 

 country to expand its science and technology (S/T) re- 

 sources from a fraction of the United States to one of 

 relative parity. 



The Japanese R&D system is characterized by some 

 major differences from that in the United States. In Ja- 

 pan, private industry plays a more dominant funding 

 role: industry is by far the largest source of national R&D 

 funds, accounting for 69 percent of R&D funding and 

 67 percent of R&D performance in 1985. In contrast, U.S. 

 industry provided 49 percent of R&D funds and ac- 

 counted for 73 percent of R&D performance. These fig- 

 ures suggest an additional distinction in corporate R&D 

 between the two countries; in Japan, industrial R&D is 



97-98 percent company-funded compared to 66 percent 

 in the United States (to some extent, this reflects the 

 higher levels of U.S. Government funding of defense- 

 related R&D in industry). 



The Japanese Government plays a relatively smaller 

 role in the direct funding of R&D in Japan than does the 

 Federal Government in the United States. In Japan, the 

 government was the source of 21 percent of R&D funds 

 in 1985, whereas the U.S. Federal Government was the 

 source of 48 percent of R&D funds in the United States. 

 This significant difference is largely attributable to two 

 factors. First, defense expenditures typically have been 

 low in Japan and in fact were restricted from 1976 to 

 1986; consequently, less than 1 percent of Japanese R&D 

 expenditures was devoted to defense purposes, com- 

 pared to 30 percent in the United States.^ Second, the 

 Japanese Government traditionally has not provided R&D 

 funding to industry, a policy which, combined with Jap- 

 anese fiscal restraint, has resulted in a fairly limited transfer 

 of R&D funds between these two sectors. 



'Under the Japanese constitution — which was designed by American officials 

 controlling Occupied Japan — Japan renounced the threat or use of force. Con- 

 sequently, Japanese military forces are essentially limited to defensive capabil- 

 ities. Two subsequent US. -Japanese security treaties (in 1951 and I960) outlined 

 the nature of the military/defense relationship between the two countries. 

 Throughout the postwar era, Japan has made policy decisions limiting the scope 

 of its domestic defense forces and defense industry, culminating in the 1976 

 policies of restricting defense expenditures to 1 percent of GNP and prohibihng 

 most arms sales abroad. Although the "1-percent rule" was revoked in 1986, 

 there are no immediate plans to increase defense expenditures significantly 

 above 1 percent of GNP. Japanese defense expenditures consistently have been 

 equivalent to about 1 percent of GNP since 1965. 



VII 



