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Growth-stunting technology

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Information and communications technology (ICT) has made quite remarkable strides during the past quarter of a century since 1991.

If the conventional wisdom that economic growth is driven by innovations stands, the dramatic revolution achieved by ICT should have resulted in remarkable growth for the Japanese economy. The fact is that the economic growth rate during the past 25 years has averaged less than 1 percent per year in real terms and remained negative in nominal terms.

By 1997, Japanese banks were able to dispose of the huge nonperforming loans they had accumulated in the early 1990s following the bursting of economic bubbles. Those loans resulted from sustained declines in real estate and stock market prices. In those years, ITC equipment permeated rapidly into the Japanese economy. Still, the economy was unable to regain its growth power.

This means the proposition that innovation contributes to economic growth is not always true. Indeed, my view is that the ICT revolution has hampered economic growth in Japan. I now would like to enumerate the bases for this seemingly paradoxical proposition:

(1) At virtually all offices of corporations and government ministries and agencies, a personal computer with a display panel and a keyboard has been installed on the desk of every worker, with a major portion of office work devoted to preparing documents on computers as well as receiving and sending emails.

This has drastically improved the efficiency of office work and reduced the number of necessary office workers. Furthermore, the ICT revolution has accelerated replacement of a growing number of full-time employees with irregular workers. That’s because, in an office heavily dependent on personal computers, there is no need for a sense of belonging among workers or for close personal relations among them.

Nor is there a need for workers with long experience in the office because past work records can easily be seen on the computer screen. Thus, the ICT revolution has made it possible to run offices with low-paid irregular workers hired for a limited period of time.

(2) As personal computers, tablets, smartphones and other types of digital equipment have become increasingly multifunctional, there has been a definite decline in demand for other various products and services such as newspapers, magazines, books, dictionaries, maps, cameras, video recorders, televisions and postal, telephone and transportation services. The fall in household spending due to the spread of mobile electronic devices is conspicuous.

(3) The growing popularity of the Internet mail-order business has kept more and more consumers away not only from their neighborhood retail shops but also from large-scale retail outlets, leading large stores to become showrooms for home electric appliances and information/communication equipment.

Initially personal computers played the role of media that connected people with Internet mail-order services; now it’s tablets and smartphones.

The growing use of Internet mail- order services has led to a reduced number employees at retail stores and indirectly led to decrease consumer spending through the fall of household income. The door-to-door delivery service industry is the only segment that is benefiting from the growing popularity of Internet mail-order services. But increased employment in this segment cannot possibly make up for a drop in the number of retail business jobs.

(4) Advertising through mass-communications media has lost its relative effectiveness. This is because consumers have become able to obtain detailed specifications and prices for various products, hotels, restaurants and the like through the Internet.

Besides, when a person turns on a computer to look for certain information, he or she is exposed to all kinds of advertisements displayed on the screen and can obtain specifications and other details of a product that may draw the person’s interest.

(5) Stiff competition is going on among makers of laptop computers, tablets and smartphones. Early on, laptop makers were forced to fight an uphill battle after the introduction of tablets. Then tablets started losing ground with the appearance of large screen smartphones. It now appears that, in the near future, the mainstay product of mobile equipment will be lightweight smartphones with large screens.

(6) The Japanese electronics industry has rapidly declined since 2000. The production value of that industry fell to ¥11 trillion in 2013, less than one half of ¥26 trillion in 2000. Within the electronics industry, a wide disparity in international competitiveness exists between makers of electronic components and devices, on one hand, and the makers of finished products like computer-related systems and communications equipment, on the other.

Trade statistics for 2013 show that while the former category registered a surplus of ¥2.9 trillion, the latter suffered a deficit of ¥3.7 trillion. This indicates that the higher the proportion of ICT machines and equipment in household consumption and corporate capital investments, the lower will be the growth rate of the Japanese economy.

From 1985 to around 1997, the electronics industry was the top foreign currency earner by recording trade surpluses of nearly ¥10 trillion annually, surpassing the automobile industry. But since then, the industry has continued to decline, turning its trade balance into the red in 2013.

Moreover, close to 80 percent of its exports are electronic components and devices. Finished ICT products fell to an unrecoverable level. The trade deficit for the electronics industry alone has caused the loss of nearly 3 percent of Japan’s gross domestic product.

When the ICT revolution got under way, Japan boasted of its domination of the global electronics market, leading everybody to draw a rosy picture of the future of the Japanese economy. But the actual result has proved to be completely the opposite.

Japanese electronics makers became the victim of a pincer attack by Apple Inc. of the United States and Samsung Electronics of South Korea, and were driven out of the global market for tablets and smartphones.

Samsung has started losing steam since last year as Xiaomi Inc. of China makes big strides into the world market, becoming the third largest player in the global smartphone market behind Samsung and Apple.

The market once dominated by Japanese makers has now become an arena for tough competition among the U.S., South Korea and China.

Takamitsu Sawa, a former professor of economics at Kyoto University, is president of Shiga University.

  • Dipak Bose

    except for the heavy industrial products japan does not produce anything what people use whether ll electrical/electronic products are Made in China by Japanese or American companies.

    • Japanese Bull Fighter

      So what is wrong with heavy industrial goods? As long as the companies make money and provide jobs, what difference does it make whether or not the average punter knows the company name or not? If you go looking for German or British consumer electronics, you won’t find much to buy but if you are looking for engines for your AirBus or Boeing airliner, you may well get them from Rolls Royce. If you are looking for buses and heavy duty trucks, you may well get them from Mercedes Benz. You won’t find as much from Hitachi and Toshiba in stores for the home consumer as you would have thirty years ago, but if you’re looking for turbines and generators for your power station, both are major producers.

      • Dipak Bose

        Light industries and consumer goods industries provide maximum jobs. Those jobs in Japan have disappeared because of the entry of Made in China products produced by Japanese companies in China. This is the real issue.
        The problem is not restricted to Japan only.
        Heavy industrial products also may not last long in Japan as Nippon Steel is moving its plants to China.
        This author knows very little. How can he be a professor in Economics with such funny knowledge?

  • Japanese Bull Fighter

    A very shallow and muddled analysis. Moreover, much of what the author describes are trends that are even stronger in other countries. For example, the shift of advertising to the Internet has had a vastly greater impact on newspapers in the US than it has had in Japan. The application of IT to POS (point of sales) is far more in evidence in Britain where I am as I write this than it is in Japan.