JAPAN’S GROWTH STRATEGY –WHAT CAN BE LEARNED FROM
INTERNATIONAL GOOD PRACTICES?
Dirk Pilat, Deputy DirectorDirectorate for Science, Technology and Industry, [email protected]
RIETI BBLTokyo, 20 December 2013
Outline
– Japan’s productivity performance
– Some important drivers of productivity• Globalisation - Engagement in global value chains• Investment in knowledge, upgrading and
competitiveness• The role of entrepreneurship• Other key drivers: human resources, science,
innovation and ICT
– Conclusions2
Japan’s income gap is primarily due to low productivity levels ..
Differences in GDP per capita levels compared with OECD average, 2012
Source: OECD Compendium of Productivity Indicators 2013, http://dx.doi.org/10.1787.888932936522
-80 -60 -40 -20 0 20 40 60 80
NOR
CHE
USA
AUS
NLD
CAN
DEU
GBR
FRA
JPN
ITA
NZL
ESP
KOR
ISR
PRT
CHL
POL
MEX
TUR
Gap in GDP per capita
80
-80 -60 -40 -20 0 20 40 60 80
= Gap in GDP per hour worked
89
-80 -60 -40 -20 0 20 40 60 80
+ Gap in hours worked per capita
3
… that have grown only little in recent years
Growth in GDP per hour worked, total economy, annual percentage change
Source: OECD Compendium of Productivity Indicators 2013, http://dx.doi.org/10.1787.888932936522
-1
0
1
2
3
4
5
6
7
8
POL
KOR IRL
TUR
CHL
SWE
USA
AUS
FIN
GBR
JPN
DEU
FRA
NZL
NLD
MEX
CAN
CHE
ESP
ISR ITA
1995-2012 2001-07 2007-12
4
Japan’s positioning in global value chains
5
US trade balance CHN TWN DEU KOR ROW WorldGross -1,646 0 0 0 0 -1,646
Value added -65 -207 -161 -800 -413 -1,646
USA CHN
Final good1,875
Components229
TWN
DEU
KOR
ROW
207
161
800
413Assembly65
Upstream input
suppliers?
Global Value Chains and Measuring Trade in Value Added: the iPhone
10 million units exported from China to the US
The analysis takes only into account the direct suppliers of the Chinese assembler 6
• Global Input-Output Model: national IO tables linked by bilateral trade statistics
• Based on official statistics• Large and growing coverage
– 57 countries (all OECD, BRIICS, SE Asia)– > 95% of GDP, > 90% of world trade– China; distinction between processing and non-processing trade
• First release (of results) on 16 January 2013 – second release at OECD Ministerial Meeting (May 2013)
• Trade flows in value added and applied indicators• Further work: employment and skills, income, firm heterogeneity…
7
OECD-WTO database on Trade in Value Added
Japan is a strong participant in GVCs …
8
For a large economy, Japan is a strong participant in global value chains, 2009 …
Source: OECD-WTO, Trade in Value Added database, www.oecd.org/trade/valueadded
15
28
0%10%20%30%40%50%60%70%80%
Backward participation Forward participation
.. in particular in some sectors
9
… in particular in heavy and high-tech manufacturing, 2009
Source: OECD-WTO, Trade in Value Added database, www.oecd.org/trade/valueadded
0%
5%
10%
15%
20%
25%
Backward participation Forward participation Korea
… though value creation through services is lagging …
10
A growing share of value creation in trade is due to services, especially business services(Services value added embodied in manufacturing exports, 1995 and 2009)
Source: OECD-WTO, Trade in Value Added database, www.oecd.org/trade/valueadded
0%5%
10%15%20%25%30%35%40%45%
Wholesale, retail, hotels & rest. Transport, storage & telecom. Finance & Insurance Business services Other services 1995 total
… and Japan has lost ground as a manufacturing exporter, also in value added terms
11
Percentage shares of total world manufacturing goods, 1995 and 2009
Source: OECD-WTO, Trade in Value Added (TiVA) database, May 2013.
0
4
8
12
16
% Gross exports Value added
0
4
8
12
16%
1995
Jobs in the business sector sustained by foreign final demand, 1995 and 2008As a percentage of total business sector employment
Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932904469
0
10
20
30
40
% 2008 1995
Employment in Japan has benefited from engagement in GVCs …
12
… with demand from many regions affecting jobs in Japan
Jobs sustained by foreign final demand, by region of demand, 2008As a percentage of total jobs embodied in foreign final demand
Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932904507 13
GVCs: what they mean for policy
• Trade and investment:
– GVCS depend on the easy/smooth circulation of productive resources– No more mercantilism: GVCs are about imports and exports; – Barriers to import = tax on exports– Trade facilitation + efficient services
• Competitiveness:– Competitiveness is about activities instead of industries: in GVCs, what you
do (the value you create) matters more than what you sell.– Competitiveness depends on exports and imports; offshoring and
outsourcing can reinforce competitiveness.– The manufacturing of goods remains core in GVCs but is increasingly
dependent on efficient services that enable customisation to demand.
14
The role of innovation for upgrading in global value chains
15
16
Pre‐productionIntangible
Pre‐productionTangible activities
Post‐productionIntangible
R&D
Design
Logistics: purchase
Production
Logistics
Marketing
Services
Value chainactivities
Value added
Value Chain in the 1970s
Global Value Chain in the 2000s
Value creation in global value chains is often linked to knowledge and services ..
The smiley curve; value creation in the value chain
Business investment in KBC and tangible assets (% adjusted GDP, 2010)
Source: OECD calculations based on INTAN-Invest, Eurostat and multiple national sources. 17
.. and investment in knowledge-based capital now accounts for close to half of all business
investment in several OECD countries
0
5
10
15
20
25
30
35
% Non-residential physical assets Software and databases R&D and other intellectual property products Brand equity, firm-specific human capital, organisational capital
18
What is knowledge-based capital (KBC) ?
Computerised information
Innovative property
Economic competencies
19
What is knowledge-based capital (KBC) ?
Computerised information
Innovative property
Economic competencies
Software and databases
20
What is knowledge-based capital (KBC) ?
Computerised information
Innovative property
Economic competencies
Copyrights, patents, trademarks, designs
T M
Japan is a strong performer in IP, though mainly in patents(IP bundle of top applicants, 2010-2012)
Statlink 2: http://dx.doi.org/10.1787/888932892575
Source: OECD (2013), OECD Science, Technology and Industry Scoreboard 2013: Innovation for Growth, OECD Publishing, www.oecd.org/sti/scoreboard.htm.
0
25
50
75
100
125
150
EPO Patents OHIM Trademarks OHIM Designs
Thousands of applications
21
22
What is knowledge-based capital (KBC) ?
Computerised information
Innovative property
Economic competencies
(brand equity, firm-specific human capital, business networks, organisational know-how that increases enterprise efficiency, etc.)
23
Knowledge based capital – adding value to production and enabling differentiation
Source: IMD (2000) Innovation and Renovation: The Nespresso Story, IMD046, 03/2003. © Nespresso
Retaining value in GVCs: knowledge-based capital and the role of “sticky” factors
• Policies that can make value ‘stick’ to a location (or country), e.g.:
– Quality of institutional and policy frameworks
– A sound business environment, adapted to the growing importance of investment in knowledge, i.e. beyond R&D
– Sufficient public investment in skills, research, infrastructure –possibly with some strategic choices
– Strong domestic capabilities, including a strong SME supplier base
– Links between stages of the value chain, e.g. R&D, design, production, services, etc. – enabling the co-location of activities
– Efficient support for innovation and entrepreneurship
– The social fabric of society (ability to change)
– Services, but with a strong link to manufacturing
24
Entrepreneurship - How does Japan compare?
25
26
Where are the new opportunities coming from? Young firms …
The contribution of firms to job creation, average over 15 countries, 2001-2011
Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932889383
-6
-4
-2
0
2
4
6
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
%Young firms (5 years old or less) Old firms (6 years old or more) Total
27
… independent of their size …
Average over 15 countries, 2001-2011
0
5
10
15
20
25
30
35
40
45
Small young Small old Medium young Medium old Large young Large old
% Employment Job destruction Job creation
0
5
10
15
20
25
30
35
40
45
Small young Small old Medium young Medium old Large young Large old
% Employment Job destruction Job creation
0
5
10
15
20
25
30
35
40
45
Small young Small old Medium young Medium old Large young Large old
% Employment Job destruction Job creation
Source: OECD Science, Technology and Industry Scoreboard 2013.http://dx.doi.org/10.1787/888932889402
… and across most countriesEmployment, job creation and job destruction in young firms, 2001-11
Percentage shares, non-financial business sector (firms of 5 years old or less)
Source: OECD Science, Technology and Industry Scoreboard 2013.http://dx.doi.org/10.1787/888932892917
0
10
20
30
40
50
60
70
80%
Employment Job destruction Job creation
28
But growth of young firms is a challenge in many OECD countries
Average size of firms less than 3 years old and 11 years old or more, 2001-2010
0
20
40
60
80
100Employees
11 years old or more Less than 3 years old
Manufacturing Services
Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932904279 29
Investment in risk capital is a challenge …(Venture capital investment, 2012, as a percentage of GDP)
Source: OECD, Entrepreneurship at a Glance 2013, http://dx.doi.org/10.1787/888932892993
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
%Early stage Later stage Breakdown not available
0.000
0.005
0.010
0.015
0.020
0.025
0.030
0.035Magnified
30
31
… and regulation could be further improved
Scale of 0 to 6 from least to most restrictive
Source: OECD, Product Market Regulation Database, www.oecd.org/economy/pmr, June 2013
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Index Administrative burdens on start-ups Regulatory and administrative opacity Barriers to competition Barriers to entrepreneurship in 1998
Policies to enable entrepreneurship
• Allow for experimentation: Reduce barriers to the entry (e.g. administrative regulation), growth (e.g. size-specific regulations), and exit/failure of firms (e.g. penalising bankruptcy legislation).
• Level the playing field for new and innovative firms: Some policies may end up favouring incumbents and MNEs, that often also have greater influence on policy making.
• Strengthen the innovation system for young and innovative firms, e.g. through enhanced access to (risk) capital, network development, mentoring of entrepreneurs, skills development, further improvement in technology transfer from universities and PROs, etc.
• Policies for SMEs are not the same as policies for young firms.
32
How does Japan compare on some key drivers of growth – human resources, science,
innovation and ICT?
33
Human resources are a concern …Graduation rates at doctoral level, 2000 and 2011
As a percentage of the population in the reference cohort
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932890789
43 47 45 51 45 46 45 42 50 46 49 49 51 44 53 46 47 43 43 43 32 51 57 53 52 44 47 30 38 44 47 52 51 47 45 46 42 42 40
0
1
1
2
2
3
3
4
4
CH
ES
WE
DE
UF
ING
BR
CH
ND
NK
AU
TN
ZL
NO
RIR
LA
US
SV
KN
LDU
SA
SV
NO
EC
DF
RA
BE
LC
ZE
KO
RIS
RP
RT
ITA
ES
TC
AN
ES
PJP
NG
RC
ISL
HU
NP
OL
BR
AR
US
TU
RM
EX
CH
LZ
AF
IDN
2011 2000
%
Percentage of doctorate degrees awarded to women
34
… and the number of new doctorates may not be sufficient …
New doctorates in science and engineering, 2007-2011Countries with largest number of average annual counts
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932890827
0
20,000
40,000
60,000
80,000
Graduates
All degrees Science and engineering degrees
0
2,000
4,000
6,000
8,000
35
36
… and education and training are a challenge in many OECD countries
Participation in job-related education and training by level of problem solving in technology-rich environments, 2012 (as % of adult population at relevant level)
Source: OECD, Survey of Adult Skills Database, PIAAC, April 2013
0
10
20
30
40
50
60
70
80
90% Most proficient (Level 3) Least proficient (below Level 1) No ICT experience / Failed core ICT test
The quality of science could be improved …Quantity and quality of scientific production, 2003-2011
Number of documents and percentage of world’s top-cited
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932891568
0
500
1 000
1 500
2 000
0
5
10
15
20
US
AC
HN
GB
RD
EU
JPN
FRA
CA
NIT
AE
SP
IND
AU
SK
OR
NLD
BR
AR
US
CH
EP
OL
SW
ETU
RB
EL
ISR
AU
TD
NK
GR
CFI
NM
EX
CZE
NO
RP
RT
NZL
ZAF
IRL
HU
NC
HL
SV
KS
VN
IDN
ES
TIS
LLU
X
% Number of publications (Thousands) Percentage of excellence Number of publications (thousands)
37
… with international cooperation low …Quality of scientific production and international collaboration, 2003-
2011 (as a percentage of scientific publications)
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932891606
0
20
40
60
80
0
5
10
15
20
%Top cited publications, domestic leading author Top cited publications, other leading author International collaborations
(right-hand scale) %%
38
… and international mobility lower than in other advanced economies;
International mobility of scientific authors, 1996-2011 As a percentage of authors with two or more publications, by last reported affiliation
0
10
20
30
40
%New inflows Returnees Stayers
100
0
10
20
30
40
%New inflows Returnees Stayers
100
0
10
20
30
40
%New inflows Returnees Stayers
100
Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891530 39
… increasing it could help enhance the impact of research
Impact of scientific authors, by category of mobility, 1996-2011Based on the median source-normalized impact per paper (SNIP)
Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891549
0.0
0.5
1.0
1.5
Stayers Returnees New inflows Outflows
Impact factor
40
Support for business R&D is relatively modest …
As a percentage of GDP, 2011
Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891112 41
… the R&D tax credit could be better adapted to young firms ..
Implied tax subsidy on R&D expenditures, 2013
Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150
42
… Japan is a strong investor in business R&D …(R&D intensity and support, as a percentage of GDP, 2011)
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932890143
USA
FRA
CHN
JPN
KOR
CANGBR NLD
BRA
AUS BEL
RUS
TUR
ESP
AUT
IRL
PRT HUNNOR CZE
ZAF
DNK
ITA
SVN
CHL
POL
SVK
EST
FIN
DEU
ISR
LUX
MEX
NZL
SWE
CHE
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45
BERD
, as
% o
f GDP
Total government support (direct and tax) to business R&D, as % of GDP
Volume of tax support to business R&D, 2011 (million USD PPP)
USD 75 million USD 250 million USD 2 500 million No incentive
Volume of tax support to business R&D, 2011 (million USD PPP)
USD 75 million USD 250 million USD 2 500 million No incentive
Volume of tax support to business R&D, 2011 (million USD PPP)
USD 75 million USD 250 million USD 2 500 million No incentive
Volume of tax support to business R&D, 2011 (million USD PPP)
USD 75 million USD 250 million USD 2 500 million No incentive
Volume of tax support to business R&D, 2011 (million USD PPP)
USD 75 million USD 250 million USD 2 500 million No incentive
Volume of tax support to business R&D, 2011 (million USD PPP)
USD 75 million USD 250 million USD 2 500 million No incentive
Volume of tax support to business R&D, 2011 (million USD PPP)
USD 75 million USD 250 million USD 2 500 million No incentive
Volume of tax support to business R&D, 2011 (million USD PPP)
USD 75 million USD 250 million USD 2 500 million No incentive
Volume of tax support to business R&D, 2011 (million USD PPP)
USD 75 million USD 250 million USD 2 500 million No incentive
Volume of tax support to business R&D, 2011 (million USD PPP)
USD 75 million USD 250 million USD 2 500 million No incentive
Volume of tax support to business R&D, 2011 (million USD PPP)
USD 75 million USD 250 million USD 2 500 million No incentive
Volume of tax support to business R&D, 2011 (million USD PPP)
USD 75 million USD 250 million USD 2 500 million No incentive No data available
43
… but scores relatively low in innovation surveys …(Innovation in the manufacturing sector, as a percentage of all
manufacturing firms, 2008-10)
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932892423
0
20
40
60
80
%
Product or process innovation only Product or process & marketing or organisational innovation Marketing or organisational innovation only
44
… and international collaboration is low …(firms engaged in international collaboration, 2008-10, as % of product
and/or process innovative firms)
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932891416
0
10
20
30
40
50
60
70% Large firms SMEs
45
… and almost completely absent in patentingInternational co-inventions in patents, 1999-2001 and 2009-11
As % of the economy’s total patents
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932891739
0
5
10
15
20
25
BE
L
CH
E
TW
N
IRL
CA
N
SG
P
GB
R
IND
DN
K
RU
S
ME
X
SW
E
EU
28
NZ
L
FIN
FR
A
NL
D
NO
R
DE
U
AU
S
CH
L
BR
A
ISR
ZA
F
ES
P
ITA
OE
CD
US
A
BR
IIC
S
CH
N
TU
R
KO
R
JPN
%
46
47
Big data is offering new opportunities for growth …
… as costs of data are falling …
Estimated worldwide data storage
Source: OECD based on IDC Digital Universe research project.
in e
xaby
tes
(bill
ions
of g
igab
ytes
)
56.30
0.05
40
10
10
20
30
40
50
60
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
HHD SSD
CAGR 1998‐2012: ‐39% CAGR 2007‐12: ‐51%
Source: OECD based on Pingdom (2011)
Average data storage cost for consumers, 1998-2012
US
D p
er G
B
48
… but Japanese firms are not yet as active in ICT than firms in other OECD countries …
Enterprises selling on-line, 2009 and 2012, as % of enterprises in the same size category)
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932893430
0
10
20
30
40
50
60
DN
K
SW
E
CH
E
NO
R
FIN
GB
R
DE
U
NL
D
FR
A
AU
S
IRL
KO
R
ES
P
CA
N
JP
N
ITA
%
2012 large 2009
49
… , not yet as well connected to broadband …Enterprises with broadband connection, by employment size, 2012
Fixed and mobile connections, as % of all enterprises
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932892176 50
… and Japan has little presence in ICT servicesOECD and major exporters of ICT services, 2000 and 2012
Billions of USD and percentages of total world exports of ICT services
Source: OECD, STI Scoreboard 2013.
13.5
12.7 8.0
7.3
7.0
4.4
3.1
2.8
2.8
2.7
2.7
2.5
2.4
2.3
1.9
1.3
1.2
1.0
1.0
0.8
0.8
0.7
0.7
0.6
0.4
0.4
0.3
0.2
0.2
0.2
0.1
0.1
0.1
0.1
0.1
0.0
0
10
20
30
40
50
USD billions
Computer and information Communication Total value, 2000
0
1
2
3Magnified
51
Drivers of growth
• Human resources:– A major concern for the future, with low participation of women and rapid
ageing
• Science:– Strong public investment, but quality could be further improved– Little international mobility of scientists, little international cooperation
• Innovation:– Strong investment in R&D – but will need to be turned into growth– Support for business R&D: some redesign?– Lack of internationalisation of innovation, little cooperation
• ICT:– Big data recognised as future driver– But Japanese firms don’t use ICT yet to its full potential– Strong in hardware, but little presence in services
52
In sum: some key issues for Japan
• Global Value Chains:– Performance has deteriorated, services content is relatively low and has not
increased in recent years– GVCs are highly dynamic – preparing for their future evolution
• Entrepreneurship:– Risk capital and regulation– Some strong SMEs – but a sufficiently strong role of young firms and
sufficient structural change to develop new areas of strength?
• Innovation and investment in knowledge:– Reflect on necessary policies for full range of investments in knowledge– Human resources a major concern– Scientific research could be strengthened– Lack of internationalisation
– ICT – services and applications are lagging
53
Relevant OECD work
Tiny url:oe.cd/kbc
Tiny urls:oe.cd/tivaoe.cd/gvc 54