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Let me make some predictions about Japan’s economic performance in and after 2000. I believe that recovery in the next 12 to 18 months will be slow but robust expansion will take place after that. The boom will not benefit everyone, as did the past expansion, however. It will be accompanied by the polarization of the population between two classes of people — one enjoying fast-rising income and another stuck with little growth in income. The gap between the two classes will widen while the recovery continues. This phenomenon will also occur among companies, industries and national organizations.

The economy is likely to boom as the information revolution makes inroads into Japan. Until this happens, the economy will be in an adjustment phase. In the runup to the scheduled introduction of a consolidated accounting system in corporate Japan in April 2001, companies saddled with surplus facilities and manpower in their business groups will be under intense pressure to restructure. Deflationary trends are likely to hit Japan in the interim.

Things will be totally different after April 2001, however. More Internet-based businesses will debut, and major companies will boost their information-related investment to shift to a new business model. Increasing utilization of information technology is likely to sharply increase corporate productivity, triggering Japan’s first major economic recovery in a decade.

The U.S. economic expansion has continued for an unprecedented eight years, exceeding 3.5 percent a year, thanks to the information revolution. Pundits who predicted about 20 years ago that Japan would surpass the U.S. in economic performance are now being forced to eat their words.

U.S. prosperity stems from the fast growth of the Internet-based e-economy. The e-economy’s boom has spread to all sectors of the U.S. economy and helped increase industrial productivity on the whole.

The information revolution has been triggered by a dramatic decrease in the cost of information. When this cost is high, companies have difficulty obtaining specific information about market needs and must be extremely cautious in developing, manufacturing and marketing products. Companies with accurate information on market needs will grow, while those without such information will be forced out of the market. This is the traditional supplier-led business model, established after the Industrial Revolution.

A sharp decrease in the cost of information as a result of the information revolution has enabled companies to obtain specific information on the needs of individual customers. This could be one of the most profound changes to benefit mankind. As the change becomes more widespread, a customer-led business model will become predominant and we will all benefit from corporate efforts to meet consumer needs.

Companies adapting to the new business model will have abundant profit-making opportunities, while those failing to shake themselves free from the traditional business model will face difficulties. The information revolution will cause earth-shaking changes in the world, comparable to those caused by the Industrial Revolution. The changing times will provide a great chance for success for companies — and will also present a high risk to those businesses that fail to adapt.

A glance at stock prices shows wide gaps between industries. Share prices in information-related industries are often quoted in five or six digits, while those in the construction, chemical, steel, paper-pulp, nonferrous metal and other traditional industries are mostly in three digits. Some experts have expressed concern over the inflated share prices of information-related companies, but there is no denying that new industries are overtaking old industries.

Even in the same industrial sector, gaps are spreading between companies adapting to the information revolution and those failing to adapt. The same is true of income gaps among individuals, as the recent research of Professor Toshiaki Tachibanaki of Kyoto University points out.

In a keynote speech to Comdex, a show for information technology held in Las Vegas in November, Sony Corp. President Nobuyuki Idei compared the Internet to a giant meteorite that fell on Yucatan Peninsula. The meteoric collision caused dramatic changes in the Earth’s environment, which led to the extinction of dinosaurs.

If the information revolution causes major changes in the economic environment, just as did the meteor, which form of business will be endangered, like the dinosaurs, and which form will develop by evolutionary process? These are the questions we need to ponder as we enter the new millennium.

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