Having just returned from the World Economic Forum – East Asia in Jakarta, I was very impressed by the high caliber of participants (high government officials, Fortune 100-level executives, NPO/NGO leaders and numerous entrepreneurs) from around the world. For me personally, it was three days of incredible discussion and dialog with a large number of very smart and passionate people. From time-to-time, I was asked how Japan was doing–not only in the context of the recent disaster but also for the future going forward–and if they will “ever come back.” This got me thinking about this topic once again and also provided me with a foreigner’s perspective on the matter. I’ve been thinking about this issue since returning to Japan.
To assert that “Japanese bureaucrats can no more create an entrepreneur than a man can give birth” may seem an obtuse preface to a clarion call for Japan’s government to focus on creating entrepreneurs. But without such an emphatic proscription up front, the bureaucrats can be expected to charge off in the wrong direction.
While Japan’s government (or any other government) cannot proactively “create” a cadre of entrepreneurs, it is well within Tokyo’s power to stop practices that effectively prevent the emergence of successful entrepreneurs. Furthermore, as I have mentioned repeatedly, many of the most innovative companies in the world were founded during times of crisis. Therefore, it is critical to remove any barriers that inhibit entrepreneurial activities and to correct (well intentioned, yet) ineffective methods that have continued to waste public funds with very little to show for it.
The need is clear. If Japan is to stem an economic decline that continues after two decades it must generate a new wave of entrepreneurial energy. Since 1975-76, when Microsoft and Apple were founded, the U.S. has consistently produced a stream of entrepreneurial ventures that have become pillars of the nation’s economy, including Oracle, Dell, Amazon, Google and many others. Over the same period, only a handful of Japanese ventures (e.g., Softbank, Uniqlo and Rakuten) have achieved success on a large scale. Yet, even these companies have yet to make the global impact that their brethren have.
When confronted with a gap like this, Japan’s bureaucratic response is reflexive and predictable. Plans are drawn up with catchy numerical targets: “Create 10,000 entrepreneurs in 10 years.” To make the initiative concrete, plans for a state-of-the-art “Entrepreneur City” may be unveiled — echoing the near-empty, heavily subsidized “Science Cities” left over from Japan’s surge of enthusiasm for R&D in the 1990s. At the same time a costly nationwide advertising campaign may be launched with slogans like “Be an Entrepreneur!”
With whatever budget remains, we can expect the centerpiece of such an initiative to be a program of cash “research” grants, allocated equally among the prefectures, and administered by a small army of bureaucrats tasked with processing voluminous paperwork from applicants. This is the trap that bureaucrats are most likely to fall into when administering any disaster relief fund.
What we can predict with near certainty is that Japan’s usual approach will fail to generate the required increase in entrepreneurial activity. Not that the reasons for failure are specific to Japanese bureaucrats. Too little spread too thin without the right support (management, resources, etc.) will lead to the same ineffective result. The inherent folly of targeted state intervention to spur entrepreneurship has been demonstrated decisively by scholars such as Josh Lerner and William Kirk & Ramana Nanda of Harvard Business School.

Anyway, back to the forum in Jakarta, I had the opportunity to listen to the vice chair of Keidanren (Japan Business Federation – 日本経済団体連合会) during the “Creating Jobs in Asia: The Entrepreneurship” session where he (Yorihiko Kojima – Mitsubishi) mentioned that “Entrepreneurship is not about the size of a company but about a mindset.” I just hope all the leaders of Keidanren really feel that way, but to make a significant difference both the organization and the government need to become more innovative and entrepreneurial in how they foster entrepreneurism in Japan.

In my next post, we’ll look at one characteristic that seems to be a particular barrier to entrepreneurial growth in Japan: fear of failure.