How global competition is transforming society’s brains into businessmen

Since the 1940s, the United States has had a clear lead in commercializing its scientific research. Professors Kazuhiro Asakawa of Keio Business School and Mark Lehrer of Suffolk University explore this phenomenon through the examples of Japan and Germany as they play catch up.

Scientist by Day, Entrepreneur by Night:How global competition is transforming society’s brains into businessmen. By CoBS Editor Kunal Ganorkar. Related research: Pushing Scientists into the Marketplace: Promoting Science Entrepreneurship, Mark Lehrer and Kazuhiro Asakawa Published by California Management Review Publication (2004)

World War II left much of the industrialized world in ruins and conferred an unprecedented technological lead on the United States. Several countries have played catch-up ever since and even surpassed the U.S. in technologically mature industries. Japan and Germany are prime examples of such countries that now consistently lead the U.S. technologically in established sectors such as automobiles, consumer electronics, and machine tools.

Arguably, however, the ‘final frontier’ of technological catch-up is the nation’s capacity to pioneer new science-based technologies and industries – essentially to develop scientific research and commercialize it. And biotechnology was seen as the hub for this trend.

Basic Research Vs Applied Research

Several Successful firms in this sector today have been founded by scientists. Such “science entrepreneurship or Scien-trepreneurship”—the simultaneous dedication of scientists to academic science and to commercial profit—has a well-established history in the U.S. and, from the 1980s in the UK, but is relatively new in Germany and Japan where there is strong distinction between research and industry.

In Germany, there is a lack of encouragement for academic scientists to commercialize their discoveries, while in parallel Japan has always given more emphasis to applied technology fields with direct commercial uses as compared to basic scientific research. As is evident, lack of excellence in science entrepreneurship is not just due to a lack of venture capital. It has to do with the way these scientists are perceived in the market economies.

The occupational identities of those who work to expand the principles of fundamental science are defined around norms of sharing and diffusing, not appropriating knowledge. This contrasts with applied research, which constitutes private knowledge-production which can be regulated through patents and delegated to private parties.

A complicated divergence

The divergence between basic research and applied research can be explained by a post-war era mobilization that took place when most of the countries outside the borders of the US decided to set up Federal research institutes outside of the universities. The objective was to allow universities to concentrate on general education while research centres focused on increasingly specialised areas of science.

The disparity can also be seen in hospitals where in the US medical centres combined facilities for treating patients with laboratories for medical research while most of the rest of the world bifurcated such activities.

As such, it was relatively harder for university scientists outside of the US to set up their own firms. Meanwhile, the commercially focused academic labs had become hotbeds of biotech innovation. At the end of 1999, U.S. companies had over 200 biotech therapeutics in Phase II/Phase III testing whereas German and Japanese companies together had less than five. The figure shows how US garnered a strong lead over Japan and Germany due to its post war era policies. So what caused this disparity?

The stumbling blocks to Scientrepreneurship: we are all just State employees

Both Germany and Japan have more or less shared the same issues. Ever since the beginning, virtually all universities and scientific research centres in Germany were and still are state institutions, so the bulk of academic scientists conducting basic research were doing so at the pleasure of the taxpayer. In a way, it could be said that any additional state incentives to encourage scientists to start their own firms would mean taxpayers were “bribing” state employees to pursue private profit. As such, it was difficult for science entrepreneurship to emerge under the public-sector norms governing these universities. However, unlike Japan, there was no law that forbade scientists to pursue outside paid activities.

In Japan, despite there being far more private universities than in Germany, most of them were tuition-funded teaching schools without sufficient resources to support extensive research. What’s more, professors at National Universities were classified as civil servants – and legally, civil servants were not allowed to serve on or found private companies. A legal exception for professors would require action at the highest levels of the central government and legislature.

In addition, as opposed to the case of Germany where policy governance was carried out by the Federal Research and Education Ministry (BMBF), the Japanese policy institution had to be cut across five ministries and agencies including the Ministries of Education, Health and Welfare, Agriculture, Forestry and Fisheries, and International Trade and Industry (MITI). It comes as no surprise then that the formulation of policies more often than not found itself faced with a mountain of bureaucracy to climb. So how did each of these two countries tackle the situation?

Germany: from research centres to technology parks

Germany was different in the sense that while the infrastructure for R&D was well developed, there was a lack of push for science entrepreneurship. The BMBF recognised the need for enhanced focus on the ‘commercial productivity’ of public R&D and from 1995 began advocating for it to an unprecedented extent.

The ministry began referring to tech start-ups as SMEs as a sign of their support and to include them into mainstream policies since SMEs formed the very backbone of the German economy.

In 1995, the BMBF organised an interregional competition in biotechnology for federal support funds. The policy objective was to encourage the self-organising formation of clusters of variegated organizations that would network to create new ventures. This so-called BioRegio Competition led to the formation of 17 regional biotechnology offices. These were essentially tech parks, that not only housed biotech firms but also provided a wide range of entrepreneurship support services such as providing advice, financing and marketing to scientists who wished to step into the field. The offices also subsidized patenting activities for them.

Technology parks benefitted from an already well-developed scientific infrastructure. These clustered around pre-existing laboratory installations at universities and research centres and German scientists jumped at this opportunity of potentially substantial returns with minimal risk owing to the high support from the federal programmes. The end-result was a boom in the number of biotech firms in Germany, tripling from 75 to 222 in a span of just 3 years (1995-1998).  However, German Scien-trepreneurship can be seen to be largely riding on the existing system of public sector science without any real reform of the latter. This is where the contrast with Japan is illuminating.

Japan: The policy of complete overhaul

In Japan, policies did not simply add a new layer to existing science and technology, but instead sought to overhaul the system of scientific research.

A first wave of reforms began with the government’s first Science and Technology (S&T) Basic Plan in 1996-2000. It promised to increase research infrastructure for biotechnology and to revamp the patent evaluation system. This policy incentivised the commercialisation of research, bringing in more competitive and government funding. Like Germany, assistance was made available in patenting research results.

Addressing the issue of scientists’ status as civil servants, the policy allowed professors at national universities to serve as officers of private firms. It also advocated to allow universities to set up their own TLOs (technology licensing organisations). As a result, there were over 300 biotechnology venture companies founded within a span of 5 years by 2003.

Reform did not stop there. Japan went one step further and set up a second basic policy which envisioned Japan as a leading science nation. The efforts included revamping the complete system of funding and career tracks for scientists and its policy of merit-based funding and hiring as opposed to patronage and seniority was ground-breaking, albeit slow progressing. And finally, to ensure that these policies were implemented, a Council for Science and Technology Policy (CSTP) was set up in 2001 – a step that their German counterparts passed up on.

The final frontier – revisited

At one level, Germany and Japan have been fairly successful in accelerating their growth in Biotechnology start-ups. These countries will continue to make headway for years to come. At another, catching up the US in science entrepreneurship is a long and arduous process and will continue to be challenging for both these countries – while it may be easy to reform political structure and encourage individual scien-trepreneurship, it is a lot more difficult to foster it at institutional level.

While Germany and Japan, through the implementation of policies, have piggybacked on the existing R&D infrastructure to promote science entrepreneurship, research institutions in the US are entrepreneurial at the institutional level itself. Here, the research institutions do not merely allow links between their scientists and private sector, but positively encourage them. The top administration of US universities and medical centres act more like private sector managers than bureaucratic leaders.

The competitive advantage of academic scientists in the US does not lie in knowledge or professionalism but simply in the extra efforts that they are required to put in to thrive in their highly competitive environments. University Scientists are regularly engaged in seeking outside research funding along with their regular classroom, laboratory and publishing duties. Scientists abroad are unlikely to advocate for equal working conditions such as these – even if it led to diminishing this clear advantage over them.

As such, science and science entrepreneurship in this sense represent the final frontier of catch up with the US and remain – at least for the present – one of the last unquestioned bastions of institutional integrity and excellence in the United States.

Useful links:

• Read a related article: The Chinese Entrepreneur: Success, politics, and Confucius
• View Professor Kazuhiro Asakawa’s academic profile at Keio Business School
• Visit his personal website for further information
• Link up with Kazuhiro Asakawa via linkedIn
• Explore the Keio Business School website

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