In May, around the time Japan was declaring a Covid-19 state of emergency, government officials scrambled to pump as much stimulus as possible into a flatlining economy.
Tokyo’s aging, creaking administrative bureaucracy had other ideas.
Fully half of the funds – totaling about $2.2 trillion – that was earmarked for coronavirus aid to small companies and households sat idle. Despite expedited approval, the money was trapped in an only-in-Japan matrix of documents, required administrative stamps and demands for separate sets of original, and properly stamped, documents that went back and forth between different fiefdoms within, and across, agencies unused to coordinating crisis responses.
Then, the morass of checks, balances and administrative speedbumps gravely damaged then Prime Minister Shinzo Abe’s pandemic response. Now, the cost of all this paper flying around – lost productivity, squandered talent and reduced gross domestic product – is growing as Japan suffers its deepest slowdown in six decades.
The good news: Abe’s successor Yoshihide Suga is rolling up his sleeves. Since taking reins on September 16, he has made digitalizing government a key priority.
Suga put Taro Kono, the capable former defense minister, in charge of attacking the myriad inefficiencies holding Asia’s No. 2 economy back. As Suga’s minister for administrative and regulatory reform, Kono has his work cut out. One of Kono’s first challenges, for example, is weaning government offices off using fax machines.
The bad news, though, is how glacially Suga’s barrier-removal process is going. Some of his big-ticket promises, including doing away with official “hanko” personal seals, would seem easy enough to execute. The same with making it easier for government bureaucrats and their sizable staffs to work from home in the Covid-19 era.
Yet Suga has yet to put words to action.
The paperwork avalanche
Japan, circa 2020, is confronting a disheartening reality: though it is skilled at producing game-changing and reliable technologies, it is bad at employing those advances where it matters most.
In the popular imagination, Japan is a high-tech wonderland awash in robots, futuristic gadgets in everyone’s hands and neon-lit skylines that have been inspiring future-focused Hollywood directors since Ridley Scott’s 1982 masterpiece “Blade Runner”. In reality, it’s a tradition-bound, paper-obsessed, labor-intensive system that is simply not giving way to technological efficiency.
Take moving house. That is a process that tends to be stressful anywhere, but in document-heavy and stubbornly analog Japan, it can be downright maddening.
Before going to the local government office, one needs to get freshly stamped papers from their original neighborhood of birth. Then to the current ward office to trade those for new ones. Then back to your original birth ward office. After that, off you toddle to the administrative office in your new neighborhood.
The fun begins anew when you need to stop by the tax office, post office, bank and other institutions – all demanding their own versions of original, properly stamped documents. All of which are stored away in physical file cabinets somewhere.
And let’s not even get started talking about the bureaucratic hoops non-Japanese expatriates must leap through.
Two years ago, Abe’s government made the wrong kind of global headlines when his minister in charge of cybersecurity admitted he’d never used a computer. Nor was Yoshitaka Sakurada, then 68, familiar with the concept of a USB drive. The episode was both a technological and political farce.
Bureaucratic Japan’s late-adopter embrace of technology is a fast-growing competitiveness challenge as China veers in the other direction. President Xi Jinping’s economy has been much quicker to champion digital payments, promote a central-bank digital currency and encourage broad use of QR codes. Its Covid-era contract-tracing apps left Japan’s in the dust.
So Suga’s challenge is a colossus. It is heartening, though, to see a Japanese leader finally getting under the economy’s hood in this way.
Change potential
Eurasia Group analyst Scott Seaman notes that a real commitment to raising Japan’s game in information and communication technologies, or ICT, could increase its global market share in sectors like data gathering, analyzing, storage, processing and digital transmission.
“Suga’s plans,” Seaman says, “to create a new agency to drive the greater digitalization of government operations and services is motivated by his belief that a lack of progress in this area has hampered the government’s ability to deliver stimulus and promote ICT development in the private sector.”
Japan, adds economist Takuto Murase of Japan Research Institute, “needs to raise its potential growth rate by digitization.” Potential gains include increased household purchasing power and new industries that create jobs and wealth and boost productivity.
Great as it sounds that he is prioritizing digitalization, Suga has yet to prove he’ll be around long enough to get big things done.
Expectations that he would call a snap election to ensure he will remain in power for more than 12 months have been dealt a blow by the current resurgence of Covid-19 cases. His next window might be late next summer, around the time Tokyo hopes to pull off an Olympics originally planned for July 2020.
Suga is off to a slow start when it comes to both accelerating Abe’s botched reform process and implementing his own priorities. He has been surprisingly timid about asking the parliament to take up specific structural upgrades.
On top of government digitalization, Suga plans to reduce mobile phone fees, move to carbon neutrality by 2050 and increase public financing for fertility treatments.
Suga’s proposals are no-brainers and appear an easy sell to opposition parties, especially considering how modest many of his goals are. Consumers in Japan long groused about excessive network fees. Suga’s plan is to lop just 10% off monthly bills.
Suga argues, though, that any deregulation win is worth pursuing. “We need to revive the economy by boldly tackling digitalization and regulatory reform,” Suga notes. “There’s a need to draw up a future path to fiscal consolidation through welfare reform. While ensuring support with public sector demand, we need to carry out wise spending that will stimulate private demand, and back the new administration’s regulatory reform” such as lowering cellphone service fees.
Economist Takeshi Yamaguchi of Morgan Stanley notes that the establishment of a digital agency is no small feat in change-averse Japan.
And certainly now’s the time for Suga to put some notable reform wins on the scoreboard.
Suga’s challenge
At the moment, his government is scrambling to cobble together another Covid-19 rescue package. The earlier $2.2 trillion, or 40% of GDP, wasn’t just hobbled by bureaucratic snafus, but a lack of audacity. Growth remains below pre-coronavirus levels, while “core” consumer prices in October fell at their fastest annual place in nearly a decade. That 0.7% drop puts the Bank of Japan a long way off from its 2% inflation target.
Suga’s team needs to get cash directly to households and businesses that need it, perhaps empowering the BOJ to deliver it. Just as important, Suga must accelerate the disruption Abe promised over nearly eight years that never arrived.
Clear success in modernizing labor markets, catalyzing a startup boom, recalibrating tax incentives, importing more foreign talent, empowering women and, of course, cutting red tape would pull more foreign investors Japan’s way.
A handful of wins would save Suga from the fate of the six governments that predated Abe’s 2012-2020 tenure. Each came and went after 12 months with little discernible progress. If not, Japan will lose yet another 12 months it can’t spare that would be best used removing barriers to faster growth.
None of those barriers have proven more debilitating in the Covid-19 era than the mountains of paper, administrative stamps, fax machines and bureaucratic hoops tripping up Japan’s economy 2020.
The time has come for Suga to deploy a fleet of digital bulldozers – and the bigger, the better.