Commentary / Japan

Japanese firms must adapt to new national security economy

by Toshifumi Kokubun and Brad Glosserman

Contributing Writers

Prime Minister Shinzo Abe has overseen important changes in Japan’s national security policies. Japan still struggles to keep pace with changes in the national security environment, however. One powerful obstacle is an outdated approach to national security among the public and in the private sector. They must update their thinking about the nature of international competition, about security threats and challenges to their country, and about the workings of the national security economy. A new mindset will allow them to better navigate the emerging landscape of this new economy, both to protect themselves and the country.

The most important feature of the new national security environment is the re-emergence of great power competition. Today, however, that competition is fundamentally economic. While the possibility of armed conflict persists, there is little appetite for military confrontation. Governments recognize the foundational importance of national economic power and are harnessing all possible means to maximize their strength. This includes “tipping” the playing field to privilege domestic competitors and using accumulated wealth to extend influence beyond national borders. This new approach is often called “geoeconomics.”

Traditionally, friends and allies have been “bought” with favorable loans or credit: China’s Belt and Road Initiative (BRI) is the most recent in a long history of such endeavors. Increasingly, however, states are resorting to economic measures to punish countries that defy or displease them. Beijing’s suspension of rare earths exports to Japan in the wake of the 2012 dispute over the Senkaku Islands or its cutoff of tourist groups to South Korea following Seoul’s decision to deploy a missile defense system in contravention of Chinese wishes are two examples of the use of economic statecraft for political purposes.

Japan must become sensitized to and creative in the use of such statecraft. While this is a government responsibility, Japanese businesses need to understand this new environment. For a start, they must appreciate that they now often compete against state-owned enterprises that enjoy foreign government support. That competitor may have privileged access to resources or information, or the competition may occur on a playing field that is tilted away from them. Either way, businesses must make strategic adjustments.

Businesses must also be alert to opportunities that are being created for them: Sometimes, the playing field is tipped to favor Japanese companies. The 2013 National Security Strategy explicitly endorsed tying government aid to the “prosperity of the Japanese people.” Similar logic is in the 2013 Japan Revitalization Strategy, which called on Japan to actively use official development aid to acquire a larger percentage of global infrastructure projects and medical markets, which would “revitalize the Japanese economy by taking in growth of emerging countries,” and “to support the overseas development of small- and medium-size enterprises using ODA.” Japan has since changed its ODA charter, and the new document states that development assistance is both a contribution to the world and a strategic tool to promote and protect Japanese national interests.

There are several ways that these changes can aid the private sector. First, the new charter says Japan will promote and strengthen public-private partnerships, and emphasizes the role of the private sector in initiating programs. Concomitant with this new emphasis is a more “aggressive” attitude to aid. Rather than waiting for partner requests for projects, Japan will push ideas, technology and expertise into the world. Businesses should exploit this new attitude to create business opportunities. Another development is a readiness to continue aid to countries that formerly would have “graduated” from assistance by passing an income threshold. More developed recipients will be able to absorb a greater range and variety of technologies and products, which should invite more Japanese companies to join such efforts.

A third much-needed attitudinal shift is in the definition of security threats and challenges. Japanese have associated security with “hard” military threats and the use of armed forces. This is outdated thinking. The range of security concerns now ranges from environmental dangers to cyberthreats (to create one spectrum). For example, the new ODA charter identifies “climate change including the creation of a low carbon society and adaptation to adverse effects of climate change; infectious diseases control; promotion of universal health coverage; mainstreaming disaster risk reduction; disaster risk reduction and post-disaster recovery measures; conservation of biodiversity and the sustainable use of resources from forests, farmlands and oceans; promotion of a sound water cycle; environmental management and other environmental-related initiatives; responses to demographic challenges including an aging population; food security and nutrition; sustainable access to resources and energy; closing the digital divide.”

This is a long list of opportunities and one that the Japanese government is encouraging companies to exploit as markets at home stagnate or shrink. Japanese officials look to ODA to play a “catalytic role,” encouraging innovation in the private sector and research institutions that have been ignored by or indifferent to such projects.

A fourth dimension of the new national security economy is the growing role of innovative technologies. Central to defense thinking in the United States is the “third offset strategy,” which will utilize new technologies and systems that have not been part of the conventional defense sector. As Hudson Institute analyst Arthur Herman explained, these technologies “overlap with the Pentagon’s new third offset strategy for developing and fielding future military systems, in many cases by tailoring commercial high-tech technologies to fit defense needs.” Core components of this approach include unmanned systems, robotics, miniaturization, artificial intelligence and big data, among others.

That list matches sectors identified in various national technology plans: They invariably include robotics, AI and big data, along with nanotechnology, biotechnology, quantum computing and composite materials. The U.S. Defense Innovation Initiative, launched in 2014, aims to tap the energy and potential of actors “outside the Department of Defense’s traditional orbit.” Japan, which has cutting-edge technologies in many of these fields, is a primary partner in this effort.

The logic of the Defense Innovation Initiative tracks that of Japan’s Defense Ministry. The ministry’s 2014 Strategy on Defense Production and Technological Bases noted the need to “appropriately introduce from the outside civilian advanced technology (potential new products) which can be applicable to defense technology.” The Defense Ministry will keep a closer eye on (“expand its survey area of”) civilian advanced technology and promote international cooperation, such as information sharing and joint research. In both countries, militaries are studying and embracing an expanding range of technologies. This affords new avenues for cooperation, as well as new business opportunities. But gaining access to cutting-edge applications of these technologies will oblige Japanese companies to shed their allergy to defense-related work. It will also require them to develop protocols and procedures for protecting information as they cooperate with foreign counterparts.

This introduces a fifth way in which national security considerations have shouldered their way into Japanese business calculations: the growing reliance on digital technologies and the vulnerabilities that are created. The list of dangers is long: theft or corruption of data; chaos and instability triggered by insecurity in the “internet of things” and the increasing connectivity in daily life; and disruption of critical infrastructure that could have society-level effects and lethal consequences. The International Telecommunication Union’s 2017 Global Cybersecurity Index warned that global interconnectivity could expose “anything and everything” to cyber risks and “everything from national critical infrastructure to basic human rights can be compromised.”

While every advanced society must grapple with this new security environment, it is especially important for Japan. The restraints imposed by Article 9 of the Constitution have encouraged a distinction between offense and defense and between front lines and rear echelons in thinking about security. Cyberthreats collapse the battle space and erase many of those lines, especially those that rely on physical space. The new U.S. National Defense Strategy makes that explicit when it acknowledges that “the homeland is no longer a sanctuary,” a truth with even greater significance for Japan.

Japan’s National Security Strategy warned that “protecting cyberspace … is vital to secure national security.” This imperative assumes greater significance given Japan’s ambition “to become the world’s highest-level IT based society.” Keidanren (the Japan Business Federation) has embraced Society 5.0, in which “all kinds of objects, people, and concepts will be linked by data. … Ensuring cybersecurity is important to prepare for a society that solves issues using technology and data.”

Japanese executives must not only understand the enormity of the changes in this evolving business environment, but they must anticipate them and minimize the dangers. Keidanren warns that “security is necessary as a precondition for creating value in cyberspace in the Society 5.0 age.” This demands attention to and management of the supply chain, which is getting longer. Keidanren insists that top management must recognize that cybersecurity is “the most important management issue.”

Businesses must shed concerns about reputational damage and share cyber incident information among themselves, the Japanese government and international partners. Only then can Japan acquire the information that it needs to protect itself and maintain its competitiveness. Similarly, changes in the Japanese workforce, especially a new mobility among employees, mean that knowledge and expertise move more easily between companies and sensitive information must be protected. Japan does not currently have a system to do so.

Toshifumi Kokubun is director of the Tama University Center for Rule-Making Strategies (CRS) and a senior adviser at Pacific Forum, a Honolulu-based think tank. Brad Glosserman is a visiting professor at CRS and a senior adviser at Pacific Forum.