Restoring Japan’s Economic Competitiveness -Regeneration and adaptation to globalization and digitalization is essential

Regarding Japan's macroeconomic policies to date, while the economy can be said to have been hampered by a hint of fiscal tightening, substantial monetary easing, despite resulting in a significant depreciation of the yen, has not led to increased investment or exports. In light of this, the fact that it has been impossible to take bold measures to tackle micro issues and halt the decline in competitiveness is another factor that cannot be ignored.

According to IMD, Japan’s competitiveness has been declining rapidly since the late 1990s, and our GDP per capita has fallen in the rankings accordingly. The fundamental factors behind Japan's declining competitiveness can be identified as 1) slow pace of business management, 2) lack of enthusiasm for and understanding of digital technology, and 3) slow response to globalization. The slow pace of business management is due to insufficient regeneration (i.e., the replacement of the old with the new) on the corporate side, a labor market that lacks fluidity on the worker side, and personnel systems that emphasize seniority. Digitalization is problematic because of an attitude of prioritizing cost reduction over value-added creation, bias that favors hardware, etc. Globalization and the overwhelming dearth of opportunities for both firms and personnel to gain experience with import/export and investment are stumbling blocks.

If Japan is to regain its competitiveness, it is imperative for firms and personnel to boost their regenerative capacity and bolster their responses to digitalization and globalization. First, the targeting of support needs to be shifted from firms to workers. Specifically, the conventional system of leaving employment matters up to firms needs to be replaced, support measures for small and medium-sized enterprises (SMEs) need to be scaled back, and government support for the labor market should be expanded. Second, it is necessary to change methods of supporting firms to provide incentives for value-added creation. Third, reform of the personnel and wage systems of firms is essential. This should include a revamping of the seniority system, the introduction of job-based employment, and the development of expert specialists. Fourth, effort should also be exerted in reforming the social security system to secure financial and human resources for growth areas.

While it is essential to increase fiscal spending until the GDP gap is closed, the money needs to be directed at areas that contribute to the recovery of competitiveness. For example, there need to be investment tax cuts to promote digitalization, proactive labor policies such as recurrent education, and human resource investment to keep up with globalization.

PDF link(PDF:493KB)