Published on January 7, 2020. Continuing an essay by Tamura Hideo in the monthly magazine Sound Argument, this article discusses how Japan’s semiconductor industry achieved dramatic progress through the VLSI Technology Research Association in the 1970s, only to decline after the bursting of the bubble under neoliberalism, shareholder capitalism, and fiscal and monetary policies that tolerated yen appreciation and deflation. While recognizing the significance of public-private funds, it argues that Japan must rebuild a comprehensive national strategy covering fiscal policy, monetary policy, and industry.

2020-01-07
Above all, the greatest factor, in my view, was the great tide of neoliberalism that swept over both Japan’s public and private sectors after the bursting of the bubble, together with fiscal and monetary policies that tolerated yen appreciation and deflation.
The following is the continuation of the previous chapter.
Readers will keenly realize that the author, Tamura Hideo, is one of the few genuine economic commentators in Japan, amid the reality that the vast majority of Japanese economic commentators possess only knowledge borrowed wholesale from the Ministry of Finance.
This month’s issue of the monthly magazine Sound Argument is filled with content that all Japanese citizens must go to their nearest bookstore to buy.
Hurry to Rebuild the Strategy
Then what should be done?
Are public-private funds useless?
Under the economic environment described above, the author believes that, unless money moves under private-sector initiative, the significance and role of public-private funds remain large.
Compared with the United States, where countless venture capital firms and investment funds, literally under private-sector initiative, have stood side by side and invested in emerging companies in places such as Silicon Valley, achieving enormous results, Japan and Europe do not have such a business climate.
Even so, enormous amounts of information concerning industry gather every moment at the Ministry of Economy, Trade and Industry, while information concerning money gathers at the Ministry of Finance.
For venture companies lacking information, the information held by the government and its analytical capability should become reinforcements alongside funding.
Of course, that is not the only thing that is lacking.
As stated above, half-baked imported neoliberalism and shareholder capitalism do not suit Japanese soil, and Japan should pursue Japanese-style funds.
At that time, a strong will and spirit for national regeneration that links the public and private sectors will be the premise.
There is a precedent.
It is the semiconductor development project of the 1970s that achieved remarkable results, the “VLSI Technology Research Association,” VLSI meaning very-large-scale integration.
It was an ambitious research and development project in which the Ministry of International Trade and Industry, now the Ministry of Economy, Trade and Industry, joined with five companies—Fujitsu, NEC, Hitachi, Toshiba, and Mitsubishi Electric—to catch up with and overtake the United States in semiconductors.
The companies brought together about one hundred of their very best researchers and engineers without holding back, made basic research a common department and practical commercialization a competition among the companies, and succeeded in developing high-density semiconductor manufacturing equipment.
The person who set this project in motion was Fujitsu managing director Toshio Ikeda, who died in 1974 at the young age of fifty-one.
Mr. Ikeda was revered even by the heads of rival companies as a “genius.”
His goal did not stop at challenging the giant IBM.
At the time, Mr. Ikeda spoke passionately to the author, who was then a novice reporter, saying, “VLSI and the computers that use it will evolve more and more from now on, and before long even super-large computers will shrink to palm size.”
He foresaw the emergence of today’s personal computers and smartphones.
Mr. Ikeda’s dream moved both the public and private sectors.
Many corporate leaders belonged to the wartime generation and were filled with a national consciousness of “what can America do to us?”
From fiscal 1976, the government provided a total of 70 billion yen in subsidies over four years.
With money amounting to just over 0.05 percent of the general-account budget at that time serving as the seed, Japan’s semiconductor technology advanced dramatically, and by the mid-1980s Japan came to overwhelm the American side in semiconductor memory.
However, since the bursting of the bubble in the early 1990s, Japan’s semiconductor industry has repeatedly declined.
Many causes of failure can be cited, including voluntary export restraints toward the United States under the Japan-U.S. Semiconductor Agreement, misreading of the business cycle peculiar to semiconductor memory, mistakes in investment strategy, and the rise of South Korea and Taiwan, but above all, the greatest factor, in my view, was the great tide of neoliberalism that swept over both Japan’s public and private sectors after the bursting of the bubble, together with fiscal and monetary policies that tolerated yen appreciation and deflation.
Neoliberalism wiped out the “Hinomaru” consciousness from both the public and private sectors.
In the 2000s, the American-style idea that “a company belongs to its shareholders” penetrated Japan, and companies came to value global investors more than the national economy.
In line with the globalization of finance and industry, fiscal policy tilted toward austerity, and monetary policy tilted toward tolerating deflation.
The result was yen appreciation.
By contrast, South Korea adopted a weak-won policy, and in semiconductors Samsung Electronics and others came to overwhelm Japanese companies, continuing to the present day (see graph).
Major semiconductor manufacturers successively separated their semiconductor divisions, formed corporate alliances, and received support from the Innovation Network Corporation of Japan, but even so, Elpida was acquired by the American company Micron, and Toshiba Memory was sold to a U.S.-South Korea-Japan corporate alliance that included South Korean manufacturers.
And recently, Panasonic decided to sell its semiconductor division to Chinese capital.
Public-private funds are indispensable for Japan’s regeneration, but unless Japan rebuilds a comprehensive national strategy covering fiscal policy, monetary policy, and industry, the wandering will continue.