Why is Japan able to sustain such phenomenal growth rates and what can the rest of us do to improve our own performance? A report from the US National Science Foundation comparing Japanese and US science and technology resources over a 21-year period, credits a major part of Japan’s much faster growth to a 9.3% average annual increase in research and development spending, fuelled mainly by Japanese industry rather than government or research establishments. The report, The Science and Technology Resources of Japan: A Comparison with the United States, claims that, after correcting for inflation, this growth rate was more than one-third higher than Japan’s impressive 6% average annual increase in gross national product. In contrast, over the same period, US research and development spending expanded more slowly, by an annual average of 2.5%, while US gross national product grew by an average of 2.8% yearly. Although Japan has a smaller population but a larger gross national product than the US, America has raised development expenditures higher than those of Japan. Consequently, each country spends a comparable proportion of its national income on research and development, and employs a similar number of scientists and engineers per capita. For example, in 1985, the most recent year for which available data allows extensive comparison, Japan spent 2.8% of its national income on development while the US spent 2.7%. Furthermore, in both countries about the same percentage of employees are scientists and engineers active in research and development, and both countries also distribute funds in similar proportions across basic research, applied research and development. The Science Foundation report, however, shows that, in some areas, the scientific establishments of the two countries differ. Japan trains relatively more engineers, for example, but far fewer natural scientists; and in contrast to the US, where half of research funds come from private industry, in Japan companies are the source of more than two-thirds of such funds. Moreover the Japanese government plays a smaller role in the direct funding of industrial research than does the US government – so much for the myth of mighty MITI, the Ministry of International Trade & Industry driving Japanese research and development expenditure with funds gathered from the Japanese taxpayer. The report gives two reasons for the difference between the US and the Japanese mix. First, Japan spends about 99% of its research expenditures in non-defence areas, whereas the US spends more than 30% of its funds on defence. Consequently, in 1985 Japan spent 2.8% of its gross national product on non-defence research, compared with a US figure of 1.9%. Second, the report finds that in contrast to the US, the Japanese government has no tradition of providing funding for industrial research, a fact which, when combined with Japanese fiscal restraint, explains why government funds account for only 2% of all Japanese industrial research. In the US in contrast, government funds account for about one-third of industrial research. In 1985, Japanese industry both funded and performed about two-thirds of national research and development. In the US, however, industry funded 49%, and performed 73%, of national research and development – and we all know that the most efficient users of money are those who spend their own money on themselves, the most inefficient being those who spend other people’s cash either on themselves or on other people. The summary of the report put out by the Science Foundation did not give any comparison of tax breaks available for research and development expensiture in the two countries.