Syu Jeng-Chyang PhD Candidate Strategy Development Department

Japan Policy Conceptual Framework

Figure 1

Source

http://www.meti.go.jp/english/aboutmeti/data/aOrganizatione/

2007/01_economic_and_industrial_policy.html

Japan Conceptual Policy Framework

Japan’s Policy Conceptual Framework consist of a circle cycle in the center from which

information flows bidirectional from and to two other supporting circles cycles in the

framework. The center circle cycle represents Industry and is based on innovation with

the goal of becoming a center of the world for innovation. This is the key development

strategy that Japan will use as the new engine for economic and social growth in the

future and which the rest of the framework is based (Economic and Industrial Policy

Bureau, 2007). The points in the center industry circle cycle are as follows:

Global innovation center

Nurturing of diverse local regional industries

Productivity improvement with Information Technology (IT)

Innovation in service sector

“The center of the world for innovation, driving economic structural reform and setting

the course for economic growth,”. Innovation has been important since the first

commissioner of the Japan Patent Office, Korekiyo Takahashi, introduced a patent

system in 1885. Today, Japan has more patent applications than any other nation.

Systematic differences among countries have become a problem since the introduction of

the patent system in Venice in the 15th century with advances in Information Technology

(IT) the problem has accelerated with Japan having about 500,000 applications per year

producing around 30% of the world total. Worldwide 1.6 million patent applications of

which 40% are duplicates filed in different countries. A March 2006 survey by the Japan

Patent office showed 23% of Japanese companies lost revenue from counterfeit goods

according to the World Customs Organization estimates of world trade in pirated goods is

80 trillion Yen. The virtuous circle cycle means new innovations produce demand and

this demand produces new innovations (Japan Patent Office, 2007).

The “go-it-alone approach” within an organization is not always effective especially in

managing knowledge and Japan’s extensive intellectual property. Promote cross-sector

integration and collaboration in the knowledge field among researchers, managers and

technicians in the private sector, universities, and public research organizations through

innovative R&D with the goal of building a framework that links R&D to growth. The

link between R&D research and growth by nurturing new innovations and spreading the

results through private companies and partnerships among government ministries and

agencies. This has been one of Japan’s key strengths since the establishment of The

Ministry of International Trade and Industry (MITI) in 1951 that engineered the success

of “Japan Inc” to the renaming of The Ministry of Economy, and Trade and Industry

(METI) in 2001 (Economic and Industrial Policy Bureau, 2007).

“Nurturing of diverse local regional industries “ in July 2006 the “Economic Growth

Initiative” was formed covering until 2015. It is a cross-sector growth strategy to improve

three factors of economic growth capital, labor, and productivity (Economic and

Industrial Policy Bureau, 2007). First, the strategy of relocation of companies to regional

areas based on matching company and regional local natural strengths. Second, the

continuation of the “Industrial Clustering Program”. Third, targeting of community-based

businesses strengthening the regional living and working infrastructure (Economic and

Industrial Policy Bureau, 2007).

Improving productivity by Information Technology (IT). The Productivity factor

increases must come from creating a Net Society for the future, Japan’s priority towards

an advanced information communications society across the entire society. The

government is pursuing an electronic government strategy for online administrative

procedures, education, medical care, welfare, transport sectors, and training high-level

human resources. An Information Technology (IT) improvement campaign is designed to

implement deeper across society and sectors (Commerce and Information Policy Bureau,

2007).

Service industry innovation, The International Monetary Fund (IMF) 2009 Article IV

Consultation with Japan supports the view of over the medium-term, reforms to restore

fiscal sustainability, deregulate the service sector, and enhance labor and product market

flexibility will help Japan to rebalance growth and lay the foundation for a sustained

expansion (International Monetary Fund, 2009). It has been identified as a low

productivity sector behind the US and Europe. Japan’s service sector represents almost

70% of GDP (Gross Domestic Product) and employment. The decision to restructure the

service industry had already begun by Japan to switch from a manufacturing-oriented

single engine to a twin-engine manufacturing and service industries model of economic

growth and development by using continuous incremental improvements (Ministry of

Economy, Trade and Industry, 2006).

The right hand virtuous circle cycle is labeled Japan. It is for policies designed for the

domestic market.

Boosting of new domestic demand

Creation of quality job opportunities

Regional revitalization

Boosting of new domestic demand using from the demand side. A circle cycle for locally

based innovation and demand. The supply side of economic growth is not possible

because of Japan’s aging population and a low fertility rate. In the next ten years the

baby-boomers that were responsible for economic growth will retire. The young

population (aged 20-34) is predicted to decrease by 31% by 2020. This factor forces

Japan to create new domestic demand given the drop in population on the supply side.

Other demographic considerations are 4.3 million Small and Medium Enterprises (SMEs)

in Japan representing 99.7% of all businesses and 70% of employment. The Small and

Medium Enterprise Agency is providing a financial safety net for SMEs that does not

depend on personal guarantees but instead has established a loan system secured by

inventory and account receivables. These support programs are set up in every prefecture

to revitalize regional economies. These Monodzukuri (Manufacturing) SMEs are well

equipped with high-level technologies that continue to serve Japan’s larger manufactures

and Service sectors (Small and Medium Enterprise Agency, 2007).

Creation of quality jobs opportunities is based on average GDP growth over the next ten

years around 2.2% annually. Gross National Income (GNI) will thus be around 2.5%

annual growth. This translates income increase of about 30% from 2004 to 2015

(Ministry of Economy, Trade and Industry, 2006).

Regional revitalization starts with SMEs that make use of local resources production area

technology, regional agriculture, forestry, fisheries products, and tourism resources.

Factors such as suburbanization have created harsh situations for shopping areas. The

revitalization of downtown areas will be supported by concentrating city functions in

urban areas. This will create compact and lively downtown areas (Small and Medium

Enterprise Agency, 2007).

The left hand side of Japan’s Policy Conceptual Framework forms the Asia virtuous

circle cycle. It lists three points of interest.

Collaboration with Asian Countries

Driving of Asian growth

Enhanced degree of international specialization

Asian countries have become important drivers of economic growth for Japan. They are

investment targets for production bases that create jobs that lead to consumption growth

that increases product demand. This cycle works by Japan’s “Mother Factories”

producing high-value-added products in Japan, commodity-type products are mass-

produced in Asia supplied by parts from Japan. It is important that this trade structure is

dynamic based on competition and cooperation to increase the freer flow of people,

goods, and capital to an enhanced degree of international specialization. Japanese

manufacturing is the main driving force of economic growth for both Japan and other

Asian countries that benefit from FDI (Foreign Direct Investment) from Japanese

manufacturers. It represents 20% of Japan’s GDP and 90% of all R&D investments of all

private companies (Manufacturing Industries Bureau, 2007).

Implications for Thailand during and after the global financial crises covering the period

of the longest economic growth era since WWII from 2002 to 2007 based on

implementing Japan Policy Conceptual Framework, All three of the global engines of

growth have been severely affected by the global financial crises. All three economic

growth engines during the growth period had been severely affected. Credit type bubble

engine of growth US, UK, Spain, and Ireland. Export led-type engine of growth Japan,

South Korea, Singapore, Germany, and Thailand. April 2009 Thailand’s exports

decreased by 16.6% on a year-to-year basis while Japan’s exports decreased by 39.1%.

Japan due to high value-added exports and Thailand due to integration of the global

supply Chain (Japan White Paper 2009, 2009). Booming Emerging Countries economic

growth engine Middle East, European Countries, etc. The Asian Emerging economic

growth engine is the only engine working led by China and India until a global recovery

takes hold. Expected outcome from Japan Policy Conceptual Framework is due to a large

part of Asia’s growing middle class defined as households with disposable incomes

ranging from $5,001 to $35,000 a increase of 6.2 times from 1990 – 2008 (Japan White

Paper 2009, 2009).

“Global Economic Strategy and Foreign Economic Policy of Japan – The Four Prioritized

Fields”. One, direct benefits for Thailand, Domestic and Foreign integrated economic

measures to drive forward the concept of doubling the size of Asia’s economy, Two, the

market development for the emerging economies are essential for the diversification of

the investment destinations. Promotion of innovation in the “Volume Zone”. Promotion

of new innovation of low cost technology. Three, “Global development of the low carbon

Revolution”. Promotion of international energy conservation and cooperation. Promotion

of overseas market expansion strategies that centers on low carbon technology. Four,

“Multi-layer cooperation including industrial cooperation with countries rich in natural

resources”. Support resource countries by providing technology. Agriculture based

alternative fuels in the case of Thailand. Strengthening international exchange in various

fields tourism and education that represents a major source of foreign exchange earnings

for Thailand and opportunity to develop Thailand’s human resources in education

required in the international specialization of labor.