Small Firms and Innovation Policy in Japan (review)

The title of this book is intriguing. Small firms and innovation policy in Japan have traditionally been separated by the "small firm problem" view: innovation is what large firms do, small firms first need to modernize—or disappear—and they do not really contribute to the Japanese innovation system. This view has undergone change over the last two decades, of course, but, as some of the contributors in this volume show, old perceptions die hard, and small firms have been struggling to take up the new role of innovators assigned to them by policymakers who have been awed by the contribution of small firms to new and high-tech industries in the United States. Many small firms in Japan have in fact disappeared since the 1990s, while start-up rates have remained historically low, making Japan an anomaly to the widespread trend of small-firm resurgence.

The title thus prompts a number of questions. How have policymakers' views of small firms changed? Has policy support brought about a reversal in start-up and closure rates? How is innovation policy changing? Is the Japanese innovation system fundamentally changing? And the real question is: to what extent are these questions answered in this volume? The short answer is: to a fair extent, especially the first three questions. Small Firms and Innovation Policy in Japan may be placed within the socio-political-economic "transition" genre, however, and as with many transition books, it is stronger on what Japan is changing from, and difficulties associated with change, than what it is changing into. For those unfamiliar with the small firm past and transition problems, this may even be welcome, but those hoping to discern directions and destinations among the welter of reform efforts over the last decade, based on solid, current empirical evidence, will likely be less satisfied. That is not to say that individual chapters are unsatisfying; some are very interesting, but individual essays cannot address all the issues raised in the title.

Chapter one, the introductory chapter, attempts to provide a theoretical framework for the book, making the general argument that despite a range of initiatives to address alleged weaknesses in Japan's innovation system, change has been modest because of institutional path dependencies. These should not be condemned, Cornelia Storz argues in her overview of the contributors' chapters, but accepted and perhaps even welcomed, since institutions and their linkages need to change in tandem to produce system change. To do this, various types of adaptation and learning need to take place.

Chapter two is a largely theoretical piece, looking at policy formulation and evaluation as an evolutionary process, involving not just politicians and bureaucrats, but diverse parties including the media, and emphasizing cognition and communication. At the individual level, Lambert Koch employs the concept of cognitive maps in preference to rationality, bounded or unbounded. At the collective level, he stresses processes of variation and selection. This perspective is potentially fruitful; it is a pity that it was not used significantly to frame the chapters that follow.

Next, Martin Hemmert examines changes in Japan's science and technology policy under the familiar slogan "from catch-up orientation to frontrunner orientation." He provides an excellent, succinct summary of the former and glimpses of an interesting Japanese-German comparison of external knowledge acquisition, which illustrates difficulties in university-industry knowledge links in the former. His summary of frontrunner-seeking policies is likewise generally well organized, but mostly descriptive. It would be nice to know how many of the rising numbers of university spin-out companies have generated revenue, for instance, or, at the other extreme, are part of a funding numbers game.

Klaus Ruth then looks at innovation policy for small and medium-sized enterprises (SMEs), through a study of technology transfer centers rather than a summary. He compares such centers in Japan and the United States, highlighting the technical orientation of the former and the more general business orientation of the latter, as well...