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May 18, 2015
The Abe Government Grapples with
Low IT Investment
by Tobias Harris
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Since returning to power in December 2012, Japanese Prime Minister Shinzo Abe has
struggled to advance the so-called "third arrow" of Abenomics, which includes both
structural reforms to transform the Japanese economy and an industrial policy that
uses state power to foster new industries. Perhaps the tip of that arrow - and a
key to its advancement - is information technology (IT) policy. In fact, as Abe's
meetings with Silicon Valley during his May 2015 trip to the United States suggest,
IT is increasingly critical to his government's economic vision.

IT policy has played an important role since the beginning of the administration.
Starting with its June 2013 "Declaration to be the World's Most Advanced IT Nation,"
the Abe government has indicated that IT is one of the keys to realizing Abenomics'
goal of sustainable growth over the long term. As the declaration says [http://r20.rs6.net/tn.jsp?f=001MdllJ2u5ejzMgvdmoJ5keIHe3tg_hOfhmxwtiKJRjoMaOiETjpPyCaCDJ6fa6bBWe0mWrr4GuAJJdsrS2vlOUohMLLB9-isEXzWkiqR441uQwGsXCoaEkE7ldz4TMZfXeGCMbBeXCTvuq5Uxpgq6szLggRgJClXKtCD6PF61vPRMP82fyYK18PPDErD-bLSuyYRB9-DR-M8MsgQLlo3SpJs1WLIulp2XwVvJEj-V0KPYQ-fBH9RMqQ==&c=KrERIqXXdlViXgSY0JwgBdWC_aDPkLrY_HgsvG3Sa_y0ghJGgEUKhQ==&ch=gZjqSeB1Jm3hA8aRZqaDVJxebc32mjWKnC6qUIDDuHM8xZ3BlGngrw==]:

Information technology (IT) has the power to spur innovation as an all-purpose tool
that can be used in all fields. IT can lead to higher productivity in service industries,
which is relatively low despite accounting for approximately 70% of Japan's GDP,
and contribute to higher productivity as a foundation for growth potential.

Greater IT investment in the service industry may well determine whether the Japanese
economy overcomes stagnation over the next 15-20 years. As a recent report by the
McKinsey Global Institute [http://r20.rs6.net/tn.jsp?f=001MdllJ2u5ejzMgvdmoJ5keIHe3tg_hOfhmxwtiKJRjoMaOiETjpPyCaCDJ6fa6bBWJygrFdZVVAU-v3fgVeJEW1UqMmnYVEAWPKCqx_z9mBJ-0JZq4gy95l5ddSBDqhVVyJHiFXIV4yOa9dTcaL3t0KqVUMDR1vQ2MSHwN0NN3vB2_IFNUU5QjT1qwbJxNGXGt8MxyqKlJBd4rn7jfqnRybxdnKbXFHtp2Qyb5PxW8KgWOwp6iIdq7WbhrqVuWvZZxfVLkLDhnIDeJJbz9WAfxg==&c=KrERIqXXdlViXgSY0JwgBdWC_aDPkLrY_HgsvG3Sa_y0ghJGgEUKhQ==&ch=gZjqSeB1Jm3hA8aRZqaDVJxebc32mjWKnC6qUIDDuHM8xZ3BlGngrw==]
suggests: "If Japan can successfully double its rate of productivity growth, it
could boost annual GDP growth to approximately 3 percent. By 2025, this would increase
Japan's GDP by up to 30 percent over the current trajectory."

To unlock these productivity gains, IT must also factor prominently in labor-market
reform, which encourages employers to invest in labor-saving technologies, and education
reform, which provides young workers with the skills to compete in more flexible
labor markets.

Despite rhetoric about the importance of IT, however, the government has been slow
to articulate the necessary regulatory reforms. Similarly, while the Abe government
has voiced its support for a stronger domestic IT industry and a more vibrant start-up
culture -in 2015 the government awarded the first annual "Japan Venture Prize" [http://r20.rs6.net/tn.jsp?f=001MdllJ2u5ejzMgvdmoJ5keIHe3tg_hOfhmxwtiKJRjoMaOiETjpPyCaCDJ6fa6bBWC9yzcsftDFFOFpauY_oHvbFjBeuQWYVi-9tExNk5L1ps9DYZF-t0DfFfUxEB5xyO5BC1bpwGnLrfqvKesA6g0fMs1eznKHbVF94-ucX1vfyAS59Dz5zPoCYC7ntqQM6OBiDoQRQyX1Vu7MOa9OmpDqnUhglPAmHxCaWeosOJjHg=&c=KrERIqXXdlViXgSY0JwgBdWC_aDPkLrY_HgsvG3Sa_y0ghJGgEUKhQ==&ch=gZjqSeB1Jm3hA8aRZqaDVJxebc32mjWKnC6qUIDDuHM8xZ3BlGngrw==]
- it faces an uphill battle to encourage entrepreneurship in the IT-producing sector,
not least because low levels of investment in IT-using sectors depresses demand
for new hardware and software.

The Abe government clearly recognizes that it must do more to create an environment
in which the service sector can invest in productivity-enhancing technology. In
fact, this issue is expected to be central to the government's 2015 growth strategy,
which will be issued in June.

Continue reading on our website [http://r20.rs6.net/tn.jsp?f=001MdllJ2u5ejzMgvdmoJ5keIHe3tg_hOfhmxwtiKJRjoMaOiETjpPyCaCDJ6fa6bBW8_AUWodpxWnneHajm6PGQ5OJjSov-8bnvMAThbyntdasbRuTpBdbW6mhWQoCPB5VcPIUxab5qG8GDgEowA3-sOhosl9Mo2tLz21wuowkYVXaaqRjp9jpzebXgrxlkxtLggH_YqdKHJtrCzr4PzXcEhGYq1HrVMHo&c=KrERIqXXdlViXgSY0JwgBdWC_aDPkLrY_HgsvG3Sa_y0ghJGgEUKhQ==&ch=gZjqSeB1Jm3hA8aRZqaDVJxebc32mjWKnC6qUIDDuHM8xZ3BlGngrw==]
or see more articles by Tobias Harris here [http://r20.rs6.net/tn.jsp?f=001MdllJ2u5ejzMgvdmoJ5keIHe3tg_hOfhmxwtiKJRjoMaOiETjpPyCVxDhjt-veu41IPgjlGTBk7MJqYUEJSNUTThByeYFLnn0MXbNAEJ-fYUZvCXHKMi3xqeQcV6Y6GB-zt4IYaV4ATuEJl0EhitUDyzgh838GfAlN2zi_On5AMqKgRPmtjlR7K3zMWBT1Kk7XJAzFa4mfWQ5tD9YUGG-R0bz_2R97L-Y-T6WPWouC_GBJv87PvhW42v_DckhKdCCWLP40YQInY=&c=KrERIqXXdlViXgSY0JwgBdWC_aDPkLrY_HgsvG3Sa_y0ghJGgEUKhQ==&ch=gZjqSeB1Jm3hA8aRZqaDVJxebc32mjWKnC6qUIDDuHM8xZ3BlGngrw==].

Tobias Harris is the Economy, Trade, and Business Fellow at Sasakawa Peace Foundation
USA.
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Sasakawa Peace Foundation USA
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Suite 300
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