Japan and Germany How Different Are Their Strategies?€¦ · 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030 2034 2038 2042

Japan and Germany

– How Different Are Their Strategies?

Fujitsu Research Institute

Dr. Martin Schulz [email protected]

2015.09.08

Growth and Reform in Japan and Germany

1

Structural change in “super ageing” societies

Reform challenges during structural change

Reform in the “new normal” of ageing societies

Copyright 2015 FUJITSU RESEARCH INSTITUTE 1

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8-3

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Germany

US

Mature Economy Growth Rates have Converged

Source: © FRI 2015; Data from IMF-WEO; OECD. Copyright 2010 FUJITSU RESEARCH INSTITUTE

Potential Growth Rates 1990-2030 (%)

Note: 10-year moving averages of IMF GDP growth rates at constant prices. 2018-30 OECD Forecast.

Japan

0

1

2

2001-07 2012-17 2018-30 2031-2050

Potential Growth per Employee (%)

Note: OECD Estimate/Forecast.

Ja

pa

n

US

Ge

rma

ny

Ja

pa

n

US

Ge

rma

ny

New Normal

New Normal

2.4%

1.4%

Demography Gap OECD Forecasts

US Bubbles

2 Copyright 2015 FUJITSU RESEARCH INSTITUTE

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50

55

60

65

70

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

2022

2026

2030

2034

2038

2042

2046

2050

Germany

Japan

China

United States

Japan Bubble

Ageing Weighs on Potential Growth

Source: © FRI 2015; Data from OECD.

9.9% 4.5% 1.2%

% W

ork

ing

Age

Pop

ula

tion

Japan GDP Growth

Working Age Population (%) and Economic Growth (%)

China

7% 10.2% 5%?

0.6%? Doubling productivity

growth necessary


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120

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200

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200

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80

100

120

140

160

180

200

Ageing and Low Growth Result in Structural Changes

Japan

4 Source: CEIC; National Statistics (2015)

Germany USA

Shrinking

Underperform

Outperform

Industry ex

Mfg 8%

Mfg 12%

Agriculture 1%

Service 78%

Ind. ex

Mfg 8%

Mfg 22%

Agri. 1%

Service 68%

Ind. ex Mfg 8%

Mfg 19%

Agriculture 1%

Service 73% GDP

GDP

Shrinking

Outperform

Shrinking

Outperform

Index

Note: Gross Value Added at Factor Costs, GDP and GNE with a base of 1991=100. Percentage numbers are sectoral GDP shares.

GDP

Copyright 2015 FUJITSU RESEARCH INSTITUTE

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80

100

120

140

160

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220

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260

280

300

320

60

80

100

120

140

160

180

200

220

240

260

280

300

320

Foreign Demand Becomes the Engine of Growth

Japan Index

Source: CEIC; National Statistics (2015)

Germany USA

Shrinking

Underperform

Outperform

Exports 13%

GNE

GNE GNE

Exports 46%

Government 15%

Exports 16%

Investment 19%

Investment 21%

Government 15%

Investment 21%

Household 61% Household 55%

Government 15%

Shrinking Shrinking

Note: Gross National Expenditure, 1991=100, Investment=Gross Capital Formation. Percentage numbers are sectoral GDP shares.

Household 68%


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25

27

29

31

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35

37

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Structural Change: Investment Slowdown

Source: © FRI 2015. Data: World Bank (2015), CEIC 2015.

Gross Investment Rates (% GDP)

In Japan, high investment rates of over 30% pushed growth until the 1980s

Long investment deleveraging resulted in depression and deflation

Note: Gross Fixed Capital Formation % of GDP.

USA

Japan’s Bubble

Japan

Germany


-1

-0.5

0

0.5

1

1.5

2After Structural Adjustment, Investment is Picking Up

Source: © FRI 2015. Data: EU AMECO Database 2015.

Investment Contribution to Growth (% GDP, 5Y MA)

Japan

Germany

USA

Note: 5-year moving averages.

Broad

Investment

Recovery

Restructuring Pressure in Japan

IT Bubble


8

ROE ROA ROI

No.

Firms ROE ROA ROI

No.

Firms

Automobiles & Components 16 6 10 12 17 6 8 8

Capital Goods 13 5 7 13 12 5 8 24

Consumer Durables 28 7 3 5 19 12 15 10

Tech. Hardware & Equipment 18 9 9 7 11 6 9 6

Manufacturing Sectors 19 7 9 37 15 7 10 48

Commercial & Prof. Services 23 3 11 6

Consumer Services 26 9 9 7

Healthcare 17 11 14 5 13 8 10 7

Real Estate 29 9 12 7 24 5 8 6

Retailing 14 6 9 5 10 5 10 6

Software & Services 28 21 27 8 17 8 14 12

Service Sectors 34 15 21 38 16 7 11 31

Japan Outperforms in Services, Germany Focuses on Mfg

Source: © FRI 2015. Data from Bloomberg.

Note: Topix Index and Dt Boerse Prime All Share Perf Index Top 100 stocks, ranked by net asset growth. Only sectors with at least 5

performing companies are shown. Sector median values, averages for the table.

Profits of Top Investing Sectors (2015.08.28)

Companies with strong investment pipelines have become profitable

Investment in efficiency-oriented infrastructure and consumer services

Japan Topix Deutsche Boerse Prime


Changes in the Business Environment

Technology & Market Progress

Global Competition

Continuous Reform Challenges

Innovation

Business Challenges Profitability

Sustainability Globalization

･Global Value-Chains

･Global Market Integration

･Information Speed and Security

･Internet of Things and Services

･Diversification of Market Trends

･Product Commoditization

･Shift to Services

･Internet of Things and Services

･Shrinking Domestic Market

･Focus on Environment

･Pension and Dividend Demands

･Transparency Requirements

Ageing & Market Maturity

R&D, ICT, Services

Reform Challenges

Governance, Energy

Globalization, EPA/FTA


10

Continuous Reform: Major Initiatives in Japan and Germany

R&D, ICT, Services

Major Reform Initiatives

Governance, Energy


Koizumi

(2002)

“Agenda 2010”

(2003)

Labor Market

Abenomics

(2020?)

“Debt Brake”

(2009)

Government Finance

No “Schengen”

(1995)

Immigration

Abenomics

(2015)

Single Market

(1993)

Agriculture

University

(2004)

“Bologna”

(1999)

Education

Security Laws

(2015)

Collective Sec.

(1994,1999)

Security Grid

(2016)

Renewable

(2000, 2011)

Energy

TPP

(2018?)

Single Market

(1993)

Trade

Abenomics

(2012)

Euro

(2000)

Exchange Rate

Koizumi

(2003)

Banking Union

(2015)

Finance

Case IV

Case I

Case II

Case III

Case V

Smart Japan

(2014)

Industrie 4.0

(2012)

ICT


11

Structural Reform: Initiatives in Japan and Germany

R&D, ICT, Services

Structural Reform Initiatives

Governance, Energy


Reform Backlog Exogenous Shock

Hashimoto (1997) Governance

Koizumi (2002) Finance, Labor Market

Democrats (2009) Bureaucracy

Abe (2013) TPP, Security, Agri., Taxes

Kohl (1997) Euro Integration

Schroeder (2003) Labor Market, Soc. Security

Merkel (2011) Energy

Merkel (2015) EU Institutions

“International

Standards” EU Reform

Continuous Reform

Democrats (2011) Energy


12

Continuous Reform: Case I – Trade Regime

R&D, ICT, Services


Governance, Energy


Koizumi

(2002)

“Agenda 2010”

(2003)

Labor Market

Abenomics

(2020?)

“Debt Brake”

(2009)

Government Finance

No “Schengen”

(1995)

Immigration

Abenomics

(2015)

Single Market

(1993)

Agriculture

University

(2004)

“Bologna”

(1999)

Education

Security Laws

(2015)

Collective Sec.

(1994,1999)

Security Grid

(2016)

Renewable

(2000, 2011)

Energy

TPP

(2018?)

Single Market

(1993)

Trade

Abenomics

(2012)

Euro

(2000)

Exchange Rate

Koizumi

(2003)

Banking Union

(2015)

Finance

Smart Japan

(2014)

Industrie 4.0

(2012)

ICT

Case I


German “Offensive” Global Strategy: EU & Bilateral

Source: Map: Statistisches Bundesamt (2012). 13

German focus on EU Single Market integration and reform

Single

Market

Development

EPAs

EU selective “New-type” FTAs: “Global Europe” strategy Selection: Market Potential, FTA Impact, Regional Hubs

Countries: Chile, Mexico, Korea, Canada, South Africa, ...

Targets: Investment, Services, Competition, Standards, Procurement

FTA

FTA

German bilateral focus “New Target Market” development Selection: Market Size, Export Growth, Infrastructure Investment, Liberalization

Countries: Columbia, Mexico, Nigeria, Indonesia, Vietnam, Malaysia

Instruments: BITs, Investment Finance, High-level Visits, Export Initiatives


Japanese “Defensive” Global Strategy: TPP and FTAs

Source: Map: Wikipedia.; Picture: Shutterstock.com.

New Silk Road driven by China demand & investment

14

AEC 2015

ASEAN Economic Community (AEC) driven by trade

AIIIB 2015

Asian Infrastructure Investment Bank (AIIB) driven by China connectivity shortfalls FTA

TPP creating a dynamic market for goods, services, investment

“Next generation agreement” that covers 40% of world trade and promotes innovation and growth through far reaching deregulation

Reform Focus:

Offensive Trade &

Investment Strategy


15

Continuous Reform: Case II – Immigration

R&D, ICT, Services


Governance, Energy


Koizumi

(2002)

“Agenda 2010”

(2003)

Labor Market

Abenomics

(2020?)

“Debt Brake”

(2009)

Government Finance

No “Schengen”

(1995)

Immigration

Abenomics

(2015)

Single Market

(1993)

Agriculture

University

(2004)

“Bologna”

(1999)

Education

Security Laws

(2015)

Collective Sec.

(1994,1999)

Security Grid

(2016)

Renewable

(2000, 2011)

Energy

TPP

(2018?)

Single Market

(1993)

Trade

Abenomics

(2012)

Euro

(2000)

Exchange Rate

Koizumi

(2003)

Banking Union

(2015)

Finance

Smart Japan

(2014)

Industrie 4.0

(2012)

ICT

Case II


Without Immigration GDP Growth Cannot be Maintained

Germany

Mill.

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81

82

83

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40

45

50

55

60

1991199319951997199920012003200520072009201120132015

2005: 3.0 2010: 3.3

15-65 years old

Employment

Population

Labor Force

Source: Data: EU AMECO Database, Governments 2015.

Campaign: "Make it in Germany"

Foreigner:

11 Mill. = 13%

Foreigner Labor:

3.6 Mill. = 8.5%

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1991199319951997199920012003200520072009201120132015

Japan 15-65 years old

Employment

Population

Labor Force

Despite a shrinking native

population, Germany maintained

labor force growth with

immigration (8.5% foreign labor

force)

In the UK 15.2% of the labor

force are already foreign born,

driving GDP growth

Integration is challenging, further

education reforms necessary

Japan successful in activating

old-age labor, stabilizing the

labor force despite falling work-

age population

Prepare infrastructures and

education for global integration

Reform Focus:

Activate the labor force,

prepare for lifelong learning


17

Continuous Reform: Case III – Energy

R&D, ICT, Services


Governance, Energy


Koizumi

(2002)

“Agenda 2010”

(2003)

Labor Market

Abenomics

(2020?)

“Debt Brake”

(2009)

Government Finance

No “Schengen”

(1995)

Immigration

Abenomics

(2015)

Single Market

(1993)

Agriculture

University

(2004)

“Bologna”

(1999)

Education

Security Laws

(2015)

Collective Sec.

(1994,1999)

Security Grid

(2016)

Renewable

(2000, 2011)

Energy

TPP

(2018?)

Single Market

(1993)

Trade

Abenomics

(2012)

Euro

(2000)

Exchange Rate

Koizumi

(2003)

Banking Union

(2015)

Finance

Smart Japan

(2014)

Industrie 4.0

(2012)

ICT

Case III


Energy Productivity (Y/E)

Energy Efficiency Becomes a Sustainable Source of Growth

18

Energy productivity

(output/energy) increased after

the oil shocks but decreased on

maintaining monopolies

Government, agriculture and

trade performed poorly

Lack of continuous reform

undermined efficiency and

growth 50

100

150

200

250

300

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

Manufacturing Construction

Total Industry Government

Trade Agriculture

50

100

150

200

250

300

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

Manufacturing Construction

Total Industry

Government

Trade

Agriculture

Energy regulation boosted

productivity during the 1990s

Government and agriculture

became forerunners

$1 efficiency investment reduces

necessary energy supply

investment by $2 (IEA)

Germany

Japan

Note: Y/E = Value Added in in volume terms over intermediate energy inputs. Rebased from 1995 to 1980 = 100

Source: Data: EU-KLEMS Database

Reform Focus:

Efficiency becomes a

new source of growth


19

Continuous Reform: Case IV – Government Finance

R&D, ICT, Services


Governance, Energy


Koizumi

(2002)

“Agenda 2010”

(2003)

Labor Market

Abenomics

(2020?)

“Debt Brake”

(2009)

Government Finance

No “Schengen”

(1995)

Immigration

Abenomics

(2015)

Single Market

(1993)

Agriculture

University

(2004)

“Bologna”

(1999)

Education

Security Laws

(2015)

Collective Sec.

(1994,1999)

Security Grid

(2016)

Renewable

(2000, 2011)

Energy

TPP

(2018?)

Single Market

(1993)

Trade

Abenomics

(2012)

Euro

(2000)

Exchange Rate

Koizumi

(2003)

Banking Union

(2015)

Finance

Smart Japan

(2014)

Industrie 4.0

(2012)

ICT Case IV


Economy

Governm.

Business

Infrastr.

0

5

10

15

20

25

30

Economy

Governm.

Business

Infrastr.

Economy

Governm.

Business

Infrastr.

Finance

Fiscal

InstitutionsLegislation

Society

Financial Sustainability becomes an Important Factor

Source: © FRI 2015. Data from IMD (2015, …). 20

IMD Competitiveness

Ranking

Japan

Germany

1999

2005

2015

Government

Ranking


0

5

10

15

20

25

30

35

40

45

Germany Japan

20

25

30

35

40

45

50

55

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

Ageing Societies Need Efficient, Sustainable Governments

21

Tax

Structure Total Tax Burden & Deficit

Social Security Spending in Japan

Japan

Germany

US

Deficit Deficit

Social

Security

Direct

Taxes

Indirect

Taxes

Tax burdens in Japan and

Germany have converged

Japan finances social

security with deficits

(= tax on private savings)

Uncovered social

security costs depress

private spending and

growth

Source: OECD (2014). Data: EU AMECO Database 2015.

Reform Focus:

Increase & communicate

government efficiency

%GDP %GDP


22

Continuous Reform: Case V – ICT

R&D, ICT, Services


Governance, Energy


Koizumi

(2002)

“Agenda 2010”

(2003)

Labor Market

Abenomics

(2020?)

“Debt Brake”

(2009)

Government Finance

No “Schengen”

(1995)

Immigration

Abenomics

(2015)

Single Market

(1993)

Agriculture

University

(2004)

“Bologna”

(1999)

Education

Security Laws

(2015)

Collective Sec.

(1994,1999)

Security Grid

(2016)

Renewable

(2000, 2011)

Energy

TPP

(2018?)

Single Market

(1993)

Trade

Abenomics

(2012)

Euro

(2000)

Exchange Rate

Koizumi

(2003)

Banking Union

(2015)

Finance

Smart Japan

(2014)

Industrie 4.0

(2012)

ICT

Case V


0

0.2

0.4

0.6

0.8

1

JP

GEUS

Corp. R&D as % of GDP

Venture capital as % GDP

Triadic patents per million

population

Scientific articles per million

population

New-to-market product

innovations

Corp. non-technological

innovationCorp. collaboration

Patents with foreign co-inventors

Researchers/Employees

New Science & Engineering

degrees

Science & Tech. Empl.

/Employment

Japan Germany Average

Technology and Innovation Strengths

Source: EU (2013) Innovation Output Indicator. OECD

(2010) – A New Approach to Innovation. OECD Innovation Indicators 23

Patents

Knowledge

Employment

Tech.

Exports

Tech Service

Export

Innovative

Companies

Total Score EU Innovation Output Indicator Top rankings for Japan and Germany

Strong indicator bias on export

Japan focus on tech product export

German focus tech service export

Broad Innovation Indicators Complex picture

Japan strength in corporate R&D

German strength in engineering


Industry Platforms Smart Factories

Mfg. 20%

Government Role in the Application of Technology: IoTS

7% Consumer 29%

13%

Consumer

Platforms Global User Access, Markets, Standards,

New Business Models

Smart Automob.

1.5%

Smart Machines

2.2% Smart

IT 1.2%

Smart Agricult.

1.2%

Smart Chemical

2.2%

7% 7%

Retail

Transport

Healthcare

Government

4% Utilities

Internet of Services Partner Ecosystems

Internet of Things Device Integration

IoT Market Shares

Source: Data from IDC, Fraunhofer (2014)

Government Support Security, Standards, Infra., Cooperation

I40 Productivity Growth

24

2010 2018

IoT Market “Revolution” +20% YoY (Market Size)

1970 2030

I40 Market “Evolution” +1.5% YoY (Value Added)

Source: Graphs: Acatech, Siemens.


German “Industry 4.0” Initiative: Timeline

Action Plan -Market Framework

-Stakeholder Network

-R&D Cooperation

-EU Horizon 2020

2002 - Export Boom

2004 - IT Investment

2006 - IT Platforms

2008 - Global Crisis

2010 - Ind. Recovery

2012 - EU Growth Crisis

2014 - Smart Services

2000 - IT Bubble US Internet Giants

Enterprise Software

Boom

Siemens buys UGS (PLM)

Industry Flexibility

I40 Initiative

Service Eco-Systems

Working Time Accounts

Time Industry Government

High-tech Strategy

Annual IT Summit

Industry Alliance


Growth and Reform in the “New Normal”

Structural change is a market-driven process

Continuous focus on market flexibility and dynamics

Exogenous shocks require fast initiatives

Structural reforms in ageing societies face high relative costs

Reform backlog requires long-term governance improvements

Anchor reforms in global dynamics and focus on benefits

Technology and efficiency are the old and new sources of growth

Prepare for lifelong learning, promote efficiency gains

Support future-oriented platforms, such as “Industry 4.0”

26 Copyright 2015 FUJITSU RESEARCH INSTITUTE 26

Copyright 2015 FUJITSU RESEARCH INSTITUTE 27

Documents

Japan and Germany How Different Are Their Strategies?€¦ · 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030 2034 2038 2042