107 Final Project

Annabella Cowley

Assistant Professor Bussel

Intstds 4850

30 March, 2023

Final Project

Although Japan is a very stable and free country that embodies the institutions and norms of a representative democracy, like free and fair elections and a rule of law that protects and grants individuals civil rights and liberties, Japan still has its fair share of problems politically, economically, and socially. One of Japan’s biggest problems recently has been their contracting economy, as well as labor shortages and labor issues, including an aging population, falling birthrates, and harsh conditions in the workforce, in which some have led to overwork deaths. According to an article by TheJapanTimes, “Japan may face a shortage of more than 11 million workers by 2040, a study has found, underscoring the economic challenges the nation faces as its population ages rapidly.” This same article reported that the working age population is also set to decline from 2027, a whopping 12% by 2040. Japan’s struggling economy has even hindered their ability to digitally transform, which was a goal set in September of 2020 by Prime Minister, Yoshihide Suga. Despite a global rise in technological transformation, Japan’s public and private sector have not been fast to adapt to these changes (rakuten.today). It seems that a number of factors, especially COVID-19 and Japan’s inability to fully commit to a digital world have worsened the state of the Japanese economy, as in November 2022, Japan’s economy shrunk for the first time in a year, partnered with a soaring inflation rate. Another main reason why Japan has a hard time trying to become a digital society is the fact that there’s a reluctance to make this change both by people who (1) live their lives by tradition and see any change as bad and  (2) those who are afraid to lose their jobs to digitalization, as well as corporations who are used to doing things with a physical manufacturing mindset and are close-minded to the idea of going about things in a new and digital way. The Prime Minister, as well as many others, believe that this is one of the best things Japan could do to get back on track with their economy, as well as boosting productivity and growth. By digitally transforming, I mean in more ways than one- some of these include transforming technology both for individual and governmental use, forming new agencies that’ll enforce these transformations, and overall just trying to use this new society as a way to boost the overall countries well-being; so this means incorporating digitalization in education, medical care, disaster prevention, etc. There are multiple articles I’m choosing to highlight in this report, as they all talk about the same situation, but highlight different aspects of it, so one article may discuss the Prime Minister’s incentives for this digital transformation journey, while another may discuss the effects this decision will have not just in Japan, but a global standpoint.

Japan’s economy hasn’t always been bad, in fact for a while, it was the world’s second largest economy, next to the United States. Up until the 1990s, Japan was doing well until the property and stock market crashed, resulting in “the evaporation of net worth among Japanese corporations and households”, as well as “the strong value of the yen made debts denominated in the Japanese currency more expensive” (Business World Online). Deflation eventually set in, and the economy was in stagnation throughout most of the 1990s. When Japan had finally recovered from their stock market crash and deflation problem, they soon found yet another problem to their economy, and that was China. China was becoming “the world’s new source of mass market goods”, and there was little chance for successful competition with China, so Japan once again found itself struggling. The Central Bank of Japan decided to invest in something called quantitative easing, and the idea of this was to “transfer large amounts of liquidity to corporations so they can expand and boost economic activity” (Business World Online). This way of stimulating the economy was unsuccessful too, so the economy remained slow through the 2010s as well. The aging population I had discussed earlier was also a big cause of this dwindling economy, as it hadn’t reported any change in productive capacity since the 1980s. According to a briefing by the European Parliament, about 28.7% of Japan’s population is 65 years or older, and it’s reported that by 2036, people 65 and older will make up a third of the population.

COVID-19 had a negative impact on most of the world’s economies, particularly Japan’s already sluggish economy, but it also made the Japanese government realize that the push for a digitalized society was needed in order for the economy to get better. First things first, it’s necessary to note that Japan went about the pandemic better than most countries, but it still faced a variety of harsh problems, specifically to its economy. According to the council on foreign affairs, Japan’s economy had shrunk by 4.5% in 2020, and it did go down again in 2021, but the onset of the omicron variant set back the economy yet again. One of the main reasons why COVID marked the beginning of Japan’s realizations for a new digital agency was its obsession with paper, and a traditional Japanese stamp called hanko that acts as a signature. Japan’s government has been utilizing paper documents and seals of approval for a while now, and when COVID hit, “local governments scrambled to distribute stimulus checks to the country’s 126 million residents” (rakuten.today). Working from home was also a hard transition for many working Japanese citizens because the use of paper and hanko made it difficult for things to be done remotely.  Each Japanese ministry and local government have computer systems, but they’re not compatible with one another, which enhances the need for the government to utilize paper documents. It’s not in any way efficient, but it’s what the government has known for a while now, so it makes sense why the change to a perhaps more technological solution doesn’t sound the most appetizing. According to Rakuten Today, Japan’s digital transformation director, Takuya Hirai, said that “…but when the virus forced us to look at our own society, it was obvious that neither the public nor the private sectors had the capability to deal with it effectively. It was only this year that it became obvious to people in Japan that our country was so far behind on digitalization.” It was only until COVID-19 hit that Japan realized the way they were living wasn’t sufficient enough to keep up with the changing of the world around them, and they had to do something about it.

Japan has since made several steps in the right direction from a paper-based society  towards a more digitally-focused one. Originally in 2020, Japan’s Prime Minister, Yoshihide Suga, vowed that this would be the start of Japan’s digitalization journey, and started hiring people to form an agency that would accelerate this digital transformation. The agency has thus been established the following year, in 2021. This agency hopes to create “more sophisticated administrative service systems”, as well as promoting digitalization in people’s lives for maximum convenience and safety, so in things like education, transportation, and medical care (Japangov). An example of this is specifically in the transportation sector, the government hopes to “establish an environment where all transportation-related data… is interconnected…to provide citizens with seamless transportation services over multiple transportation modes…” (japangov). According to the National Bureau of Asian Research, with the now established Digital Agency, they also vowed  to “promote the spread of My Number Card (a smart version of the Japanese Social Security identification card) and a paperless system.” A paperless system would include more technological usage from citizens, so that they’re able to access services and get things done whenever and wherever without having to use paper or directly go to places. A study by the IMF stated that “scaling up digital investment, along with full implementation of growth-enhancing reforms that increase labor supply and productivity, could boost gross domestic product”, and Japan has started seeing exactly that. Some of these growth-enhancing reforms could include increasing career and training opportunities for those without lifetime employment (especially women because of the huge wage gap in Japan), reducing regulations and better corporate governance, and more reliance on carbon pricing.

Since Japan has started implementing such policies, GDP growth accelerated by 2.4% in 2022, which is the fastest it has grown in 12 years, and it’s predicted to maintain this pace in 2023. Japan has struggled with its economy for the past few decades now, but it looks like it could finally be on the road to being successful again with the help of a newly incentivized plan to become a more digitally-based society.

Works Cited/Bibliography

Wei, L. D., & Katanuma, M. (2023, March 30). Japan to face 11 million worker shortfall by 2040, study finds. The Japan Times. Retrieved April 3, 2023, from https://www.japantimes.co.jp/news/2023/03/30/business/economy-business/japan-worker-shortfall-study/

Digital Transformation Minister Takuya Hirai on Japan’s New Digital Agency. Rakuten Today. (2021, January 8). Retrieved April 3, 2023, from https://rakuten.today/blog/digital-transformation-minister-takuya-hirai-japans-new-digital-agency.html

European Parliament. Aging populations: Unaffordable demography. Retrieved April 3, 2023, from https://www.thelancet.com/pdfs/journals/lanhl/PIIS2666-7568(22)00272-0.pdf

Kawai, D. (2023, March 13). Overcoming Japan’s uphill battle toward Digital Transformation. The National Bureau of Asian Research (NBR). Retrieved April 3, 2023, from https://www.nbr.org/publication/overcoming-japans-uphill-battle-toward-digital-transformation/

Japan: Broaden the digital transition to strengthen economic recovery from covid-19, says OECD. Japan: broaden the digital transition to strengthen economic recovery from COVID-19, says OECD. (n.d.). Retrieved April 3, 2023, from https://www.oecd.org/newsroom/japan-broaden-the-digital-transition-to-strengthen-economic-recovery-from-covid-19-says-oecd.htm

Aiming for a digital society for diverse happiness. The Government of Japan – JapanGov -. (n.d.). Retrieved April 20, 2023, from https://www.japan.go.jp/kizuna/2020/aiming_for_a_digital_society.html