"Waiting for the IT Explosion"
By Amy McCreedy
Asia Program Associate
Professor of International Studies, University of Washington
Special Counsel, US Federal Communications Commission
Vice President, Northern Virginia Office, Mitsubishi International Corporation
Russell Hayward (commentator)
Vice President, Dynamic Strategies Asia
As Japan limps through another economically dismal year, many Japanese leaders hope to rouse the economy through massive investment in information technology (IT). Last fall, Japanese leaders unveiled a plan to make Japan the world's leading IT nation within five years, surpassing even the United States. Yet e-commerce is clogged by hundreds of legal impediments and Internet access is still too expensive, according to the Japanese government's own IT Strategy Council.
Has the Japanese central government been helping or hindering the digital revolution? How successful has Japan been in achieving its goal of IT powerhouse? And what is the role of any government in a field such as computer technology, where even the most savvy entrepreneurs do not always know what is around the next bend? To examine these and related questions, the Asia Program brought together experts from Japanese business, academia and the U.S. government (Japanese government officials declined to participate) in a May 9th Wilson Center workshop.
Marie Anchordoguy, associate professor of international studies at the University of Washington, started the discussion with stringent criticism of the Japanese government. Her basic point was that Japan is making a mistake by following its old strategy of protecting and nurturing industries—an approach that served well in the decades following World War II, but which is out of date in the fast-paced world of technology. According to Anchordoguy, Japan will be unable to compete successfully as long as NTT—Japan's mammoth telecommunications company—is treated as a "sacred cow" by the government. The 1999 breakup of NTT was "fake" and had no real impact, and NTT is still a public company in any meaningful sense. The government does no more than request "voluntary measures" from NTT to allow other players into the market, and the result is high telecommunications fees that are smothering the IT revolution.
According to Anchordoguy, telecommunications is not the only area in which Japanese leaders are hampering competition. Because the Japanese government is reluctant to serve as an "objective umpire," there is no mechanism for sweeping away the old and nurturing the new. As a result, greater risk does not lead to greater returns. It is true that Japan has many strengths, such as high savings, a strong social fabric, an impressively educated workforce and cutting-edge knowledge in fields such as wireless technology. But "without risk takers, the IT industry is doomed to mediocrity."
Satohiro Akimoto, Vice President of the Northern Virginia Office of Mitsubishi International Corporation, countered with the point that Japan's leaders are fully aware of the need to discard the "catch-up mentality" of the past. This is obvious to anyone who reads the government's IT strategy, which emphasizes human resources, e-commerce, and education. However, Akimoto expressed frustration at the government's inability to implement its goals—so that all its grand plans may prove to be nothing but "lip service." Akimoto said he hopes for better things from the new Koizumi administration. The existence of such an administration shows that the Japanese people are ready for change.
While giving the government more credit than did Anchordoguy, Akimoto hailed the private sector as the real source of his optimism. He explained how Japanese companies are taking the lead in aggressively implementing innovative IT strategies. For example, Mitsubishi has streamlined decision making, trained its employees in new skills and "flattened" its organization—quite a feat in Japan, where relations are traditionally hierarchical. Moreover, Mitsubishi has broken with the seniority system by aggressively recruiting workers with IT expertise. Such measures are not unique to Mitsubishi, but are also being made by Mitsui and others. Moreover, the abundance of venture capital in Japan and the willingness of individuals to take risks such as "job hopping" show that there is hope for a flourishing of Japan's IT industry.
Zenji Nakazawa, Special Counsel for the Wireless Telecommunications Bureau of the Federal Communications Commission (FCC), addressed the difficulty of finding a proper role for government in the world of high-tech. Not only Tokyo, but Washington too is struggling to strike a balance between beneficial regulation and cumbersome "micro-management." It is one thing to recognize the importance of IT, but another to implement a comprehensive strategy. And after implementation comes enforcement, which can be even more complex. Japan's situation is made doubly difficult by national debt that has reached 114 percent of national economic output—the largest in the world.
Nakazawa pointed out that the Japanese government has made some moves in the right direction. The government has recently submitted a bill that is similar to the U.S. Telecommunications Act of 1996. This bill would allow new entrants—who don't have the money to build their own systems—to the market by leasing NTT facilities at cost. (Currently, NTT leases only at non-competitive prices.) However, Nakazawa made clear that, although such a law would help foster competition, it would not be enough to transform Japan into an IT powerhouse. Other serious obstacles include insufficient debt and equity markets and a lack of independent research and development.
Commentator Russell Hayward, Vice President of Dynamic Strategies Asia, agreed with Akimoto that the "venture capital revolution" is a hopeful sign for the Japanese economy. He pointed out that foreign investors can "show Japanese business how to take risk," acting as a catalyst in the same way as the Ministry of International Trade and Industry (MITI) in past decades. In general, Hayward emphasized that the private sector should be the real engine for the IT industry. Hayward expressed doubts regarding the Japanese government's "force feeding" the country with 30,000 high-speed connections: "So you have a big pipe, but what are you going to push through it?" According to Hayward, Japanese industrial policy has proved better at blunting the impact of dying industries than fostering the growth of new ones.
Hayward also remarked that for all their vibrancy, megacorporations like Mitsubishi and NTT DoCoMo are only a small part of the Japanese economy. The "little guys"—construction and distribution companies for example—are not ready for the IT revolution. "How do you get these great technologies down to the people who are least able to absorb it properly?" Breaking up NTT will definitely not be sufficient to start an IT chain reaction, and might even be counterproductive in the short run; if there are no viable competitors, the result might be a power vacuum and chaos.
The ensuing discussion brought up an important issue: how much must Japan destroy of itself to adapt to the IT revolution? Must Japan mimic the United States in order to succeed, or can it draw on its traditional strengths as it did in manufacturing? Japan can perhaps find its own direction on the information highway, or at least its own lane to travel in.