It’s often said that human labor in many routine operations will be replaced by computers and rendered unnecessary in the wave of the Fourth Industrial Revolution driven by artificial intelligence, the internet of things and big data. But even if replacing human labor becomes technologically possible with the aid of AI, whether firms or government offices will actually do so from a cost-effectiveness viewpoint is another matter.

In short, they will refrain from automation in production and replacement of workers by AI unless the cost to recover the initial investment for the introduction of AI and recurring expenses for its use becomes sufficiently cheaper than the total cost of employing such workers.

Though it’s often misunderstood, there is no need for on site installation of computers that run AI. Computer services are received from data centers through the cloud. In self-driving vehicles, cameras, sensors and radar attached to them sense the situation surrounding them. The role of an autonomous driving car is to collect big data. The information is sent to a data center and the whole process of driving the vehicle, such as stopping and moving according to traffic signals, as well as sudden braking when an unexpected obstacle is detected, is directed by the autonomous driving AI at the data center.

As technology advances to enable faster communication, various kinds of AI equipped with deep-learning functions will likely be stored intensively in data centers located in countries rich in hydro resources that have cheap electricity, such as Norway, Canada and Iceland. You send your company’s data from your PC to the data centers through the cloud and commission the AI program there to process the data. Once the necessary financial data are fed into a PC in your company’s finance section, the AI program at the data center will get the information and instantly send back the result of the data processing to your PC.

Whether your company’s manpower expenses saved by cutting the staff at its finance department can exceed the cost of the computer service will influence the firm’s decision to introduce the AI service. Initially, the charges for such computer services will likely be exorbitantly high, and most companies will refrain from using such services because the cost will outweigh the benefits. The companies that use them will likely be limited to a handful of big firms that stand to gain by saving on manpower expenses.

Nevertheless, the price of such AI services will no doubt come down once more companies start offering them and compete with one another. Falling prices are expected to generate more demand, and more companies will start using the AI services.

But things may not work out this way if the companies stick to lifetime employment practices because even if the finance department staff is slashed, the cost to keep surplus workers on the payroll until they reach the mandatory retirement age will remain, thus reducing the benefits to marginal levels.

Japanese companies managed to become preeminent global players in the electronics and automotive industries, which entered a golden age under the Second Industrial Revolution driven by oil and electricity, because Japanese-style employment practices and the close-knit ties between product makers and affiliated parts suppliers worked effectively for the manufacturing of high quality and low cost products.

In the take-off phase of the Fourth Industrial Revolution, both Japanese businesses and universities were unable to become the vanguard of technological innovation. Systems and customs peculiar to Japanese-style organizations, such as employment practices, worked to their disadvantage. Furthermore, concern lingers that the systems and practices unique to Japanese organizations will stand in the way of a smooth introduction of the Fourth Industrial Revolution in this country — because the benefits of introducing AI (mainly in saved manpower expenses) could be discounted due to Japan’s employment system.

To resuscitate the Japanese economy under the Fourth Industrial Revolution, priority must be given to a radical review of Japanese-style systems and practices. In an effort to revive national universities, the education ministry turned them into independent agencies and tried to introduce a market mechanism in their management. Nonetheless, their established practices remained unchanged. Probably the same can be said about business management.

The speed of change in the Fourth Industrial Revolution is extremely high. The use of smartphones spread in no time at all. (It was only in 2007 that the first iPhone was released.) Adapting itself to the speed of change, China has implemented cashless payments, vehicle dispatch service, and unmanned convenience stores and hotels. It is reportedly only one step short of putting unmanned delivery vehicles and self-driving buses into service.

Smartphones will be indispensable to use these unmanned services. A smartphone can request the dispatch of a vehicle, make a payment at an unmanned convenience store and check in at an unmanned hotel. When renting a car or a bicycle, smartphone apps can be used to unlock and lock the vehicles and pay for the service.

In Japan, however, most internet users use smartphones merely for making calls, social networking services and downloading games, music and animation. They’re not making full use of them as internet terminals. Perhaps due to Japan’s poor internet literacy, the equivalent of giant platform businesses as represented by the United States’ GAFA (Google, Amazon, Facebook and Apple, and China’s Baidu, Alibaba, Tencent and Alipay are almost non-existent in this country.

Along with the Japanese-style systems and practices that are unsuited to the Fourth Industrial Revolution, the immaturity in Japan’s internet literacy may have left it trailing behind both the U.S. and China in the use of AI and in the development of platform businesses.

Takamitsu Sawa is vice director of the International Institute for Advanced Studies in Kizugawa, Kyoto Prefecture.

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