These developments did not happen by chance, but were the result of determined individual efforts. They also owed much to investment in technology and human capital. During the catch-up phase of the 1960s, Japanese companies were understandably concentrating their efforts on incremental, rather than radical, innovation, as their follower’s status obliged them to do. Around this strategy, institutional complementarity with education and training systems, to name a few, were structured and consolidated. In sum, Japanese people felt confident that they were advancing along the path to a “better life”.
Half a century later, after a long period of economic stagnation, Prime Minister Shinzo Abe has affirmed that “Japan is back”. His Japan Revitalisation Strategy, as the third arrow of his “Abenomics” policy, following a bold monetary policy and flexible fiscal policy, focuses on structural reforms and innovation. The recovery from the Great East Japan Earthquake is entering into a new advanced phase, moving from short-term actions to designing the future. On top of this, Tokyo has been chosen to host the 2020 Olympic and Paralympic Games. Indeed, Japan seems to be entering a post-recovery period, rather like it did 50 years ago when it joined the OECD. But this time, it faces a radically different international environment, which may demand radical, rather than incremental, policy responses.
The process of value creation through provision of goods or services is no longer contained within a company or a single country, but in several locations along what are now called global value chains (GVCs). The capacity to design and orchestrate the full process by mobilising the most appropriate actors along the chain and around the world is critical in this new framework. In the same vein, the concept of an “economic centre of gravity” is losing its raison d’être, since economic activities are becoming increasingly integrated and interdependent, crossing geographical borders, disciplines and industrial sectors, and tapping into the talents of new actors from emerging and developing countries. GVCs could be seen as the result of this new configuration.
GVCs rely on connectedness. This is a more generalised phenomenon underpinned by the internet. From the “internet of information” to the “internet of things”, opportunities for exploiting new ways to create knowledge, business and social value are unfolding every day. We are entering a new era of innovation, with its lights and shadows.
The timing could not be better. From the structural point of view, a majority of OECD countries, such as Japan, are under severe demographic pressure from ageing populations. This pressure has important implications for assuring the labour supply, meeting expanding health care costs and maintaining proper social security systems, to name but a few. Every innovative idea, including those related to social engineering, should be considered if we are to maintain, let alone raise, the quality of life of every single citizen.
Japan has demonstrated its capacity to transform constraints into advantages as, for instance, after two consecutive oil shocks in the 1970s. It must show this capacity again. That means mobilising its innovative strength, both technological and intellectual, readjusting the gender balance, and taking advantage of today’s new environment by drawing on connectivity, places and people. The huge potential of Japan’s human and knowledge capital has yet to be fully exploited. It is a tantalising prospect, and today’s policymakers must get to the task of realising it. The 50th anniversary of joining the OECD is the perfect time to start.
For more on the Japan Revitalisation Strategy, see www.kantei.go.jp
©OECD Observer No 298, Q1 2014