Japan’s digital drag

Author: Editorial Board, ANU

Until May last year, health centres in Japan were using fax machines to send handwritten reports of COVID-19 cases to the health ministry. While the reporting moved online soon after, the issue exemplifies Japan’s struggle to move away from requiring signatures or hanko stamps on physical paper for authorisation. Despite its high-tech image, Japan is still very much a paper-based analog society, including in the widespread use of hard cash and a reluctance to adopt digital payment.

In the digital age, the degree to which a nation can adopt and employ new digital technologies has become a crucial determinant of its capacity for economic transformation. The ability to innovate through digital technologies reached a new level of urgency with the onset of the COVID-19 pandemic and will, to a great extent, predict the propensity of an economy to absorb and emerge from the pandemic shock.

While most governments aspire to attain digital competitiveness and devote considerable resources to this end, their efforts do not always translate into success. A nation’s capacity to navigate the digital landscape does not necessarily correlate with its economic weight or technological competency.

Japan is a case in point. Despite its status as the world’s third largest economy and a long history of being a leader in technological development, it ranked only 27th in the latest IMD World Digital Competitiveness Ranking — a survey of how nations employ digital technologies.

This stands in contrast to the small state of Estonia, which eclipsed Japan, coming in at 21st place. Driven by its limited human resources, Estonia adapted rapidly in the digital world and has achieved a competitive edge across a number of digital sectors, including being a world leader in cyber security. This in turn has enabled Estonia to adjust swiftly in the pandemic world.

In our lead article this week, Richard Katz explores the reasons behind Japan’s failure to adapt to the digital world. A central problem he identifies is the lack of business agility among Japanese companies in their use of Information and Communications Technology (ICT).

He says that ‘most Japanese companies use ICT primarily to cut costs by automating tasks they are already doing, like inventory control’. They have failed, however, to capitalise on the potential of ICT to revolutionise the ways in which their companies operate. Such technology should ideally be enabling businesses to ‘reach more customers and suppliers via e-commerce’ and ‘use big data and the internet to develop new products and improve old ones’.

Katz also highlights the failure of analogue-era champions like Sony to adapt their business practices to the changing times. These ‘champions were so successful that they have an ingrained mindset which companies find hard to change — even when they try hard. These firms do not hire or promote recruits who are eager to revamp business models. Around 82 per cent of senior managers in Japan’s leading corporations have never worked in another firm. In Germany, that share is 28 per cent and in the United States, just 19 per cent’.

The consequences of Japan’s lagging performance in the digital world are manifold. With a stagnant economy and a rapidly shrinking population, the need to reinvigorate commerce to enhance business performance is becoming ever more urgent. ‘Different technological regimes give rise to and require different business institutions. When circumstances change, so must the institutions. Otherwise yesterday’s strengths become today’s weaknesses, and economic growth slows’, Katz argues.

While a shift to work-at-home practices has been a common strategy to mitigate the spread of COVID-19 in most countries, many Japanese workers found themselves forced back into the office, unable to work from home due to the lack of progress with digitisation in their companies and workplaces. This is at least one of the reasons that COVID-19 has maintained a stronghold in Japan, threatening public health and undermining preparation for the impending Tokyo Olympic Games.

Japan’s faltering approach to digital innovation is a far cry from the resourcefulness and technological innovation that fuelled its skyrocketing economic growth in the 1970s and 1980s.

If Japan’s government and business leaders of today could effect a digital revolution, it would help alleviate many of the nation’s economic woes, including by lifting faster the productivity of its contracting labour force.

As Katz surmises: ‘If Japan wants to revive, it has to recognise that, to paraphrase the famous American car commercial, “This is not your father’s economy”’.

Once populations are vaccinated and societies can return to the new normal of living with COVID-19, many workplaces in Japan and around the world are likely to undo much of the progress made during the pandemic, require workers to return to the office irrespective of the benefit and revive past practices. The long and crowded commutes will return and managers will once again monitor employees by input based on time in the office instead of output and productivity. Part of the reason will be the lack of digitalisation and failure to address the task of adapting to new, more efficient and flexible systems. That would be a missed opportunity and would serve to undo one of the silver linings of the pandemic. Now is the time for Japan to reinvent its work practices, take the lead in innovation once again, and transform its society for the better.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

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