Digitalization Could Double Japan’s Growth, Reform Panelist Says

Quickly improving Japan’s digital infrastructure could more than double the country’s potential growth rate and is the most important item on Prime Minister Yoshihide Suga’s reform agenda, according to a senior member of a government advisory panel.

The coronavirus pandemic has shown just how far the world’s third largest economy lags behind other countries in adopting digital technology, said economist Susumu Takahashi, who serves as vice chair of the reform panel. He says he would like to see rapid digitalization increase the country’s potential growth rate from just under 1% to at least 2%, through enhanced innovation and productivity.

“Suddenly boosting the rate to 3% or 4% would be difficult,” said Takahashi in an interview Wednesday. “But unless we use the corona crisis as an opportunity to push forward digitalization, we’ll never catch up.”

Digitalization Could Double Japan’s Growth, Reform Panelist Says

Delays in delivering cash handouts to the population during the height of the virus crisis highlighted how out of date Japan’s administrative systems have become, with attempts to facilitate online applications running into trouble and in some cases being scrapped in favor of paperwork.

A lack of digitalization and continued use of name seals for some documents are also among factors hampering Japan’s efforts to attract foreign banks and brokerages and better establish itself as an international finance hub.

Suga has made reform the central rallying cry of his administration as he seeks to quickly leave a mark before a leadership contest and general election to take place by autumn next year.

“There’s no doubt things are going much faster now,” said Takahashi, adding that the panel has moved to an approach of concluding discussions one issue at a time, instead of reporting findings on a range of items, in June. “Not only is the prime minister himself pushing for speed, but he’s also clearly stressing speed to all the relevant ministers.”

Digitalization Could Double Japan’s Growth, Reform Panelist Says

The government currently calculates Japan’s potential annual growth rate at just 0.7% while the Bank of Japan sees it even lower. Neither estimate has reached 2% in more than two and a half decades.

If Japan digitalized to the extent of Estonia, a nation seen at the forefront of digital usage in Europe, innovation and growth would be even higher, said Takahashi. But for now the country needs to catch up with its peers in Europe or the U.S. and China, he said.

“If Japan really doesn’t move now, it really will become the boiled frog,” he added.

©2020 Bloomberg L.P.

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