Publisher’s Note

What Should an “Evolutionary IndustrialPolicy” for Japan Look Like?
By Masakazu Toyoda
Many countries, including the United States and Europe, arere-evaluating their industrial policies and Japan is no exception.
In the case of semiconductors and EVs, for example, many
economies are currently offering huge subsidies and tax
incentives as part of their new industrial policies.
Japan has been stuck in a low-growth, low-wage situation for
more than two decades, and is said to have “lost between 20 to 30years”. Abenomics succeeded in overcoming deflation but has
been ineffective to halt the decline in competitiveness. In Japan,
however, the disparity between the rich and the poor is not aswide as in Western countries. With the international community
becoming increasingly unstable, as exemplified by the crisis in
Ukraine, the greatest security is undoubtedly to strengthen
competitiveness. The declining competitiveness of the Japaneseindustries cannot be allowed to continue. Japan must introduce an“Evolutionary Industrial Policy”.
I believe an “Evolutionary Industrial Policy” for Japan needs toevolve in two ways.
The first way is that industrial competition must be enhanced.
After World War II, Japanese industry achieved high productivity
gains under a system of lifetime employment and seniority.
However, this system was created and functioned very wellduring high economic growth periods, when it was essential tomaintain, enhance and secure employment, with increasingsalaries every year. Now, in a low-growth period, the situation ischanging drastically. Under the current postwar system, elders areenjoying higher positions and salaries, while the positions andsalaries for the younger generation are neither high nor sufficient.
The elders, which now represent a large portion of the population,
are satisfied with their position and have no incentive to takerisks. The young people’s morale, on the other hand, is rather low
and that generation is slowly losing the dynamism or enthusiasmthat typically generates ideas. The delay in the digitaltransformation (DX) in Japan is a prime example of a situation
where the young generation should be at the forefront, not theelders. Therefore, the seniority system needs to be reexamined.
Those with abilities, regardless of age, should be offered higher
positions and salaries, while the elderly should be allowed tocontinue to work, even after the retirement age, but should
receive salaries commensurate with their productivity andcontribution. International comparisons show that very few
Japanese companies invest in capital and human resources inspite of considerable profits. As a result, those companies losebusiness opportunities and are unable to acquire newtechnologies. For small and medium-sized enterprises (SMEs), it
is important to promote competition and, whenever possible, theSMEs shift their business towards areas with future potential.
I believe the second reason for an “Evolutionary IndustrialPolicy” is that competition is needed not only in industry, but also
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in universities and government.
According to the World University Rankings (2022), theUniversity of Tokyo and the Kyoto University are respectively
ranked 35th and 61st, among the Top 100. And those ranks aredeclining year after year. It is interesting to note that there areremarkably few foreign professors at Japanese universities. If theseniority system was eliminated and salaries differentiatedaccording to merit, both highly qualified Japanese and nonJapanese teachers would be paid appropriately. Otherwise,
outstanding Japanese professors teaching abroad would have nofinancial incentive to return to Japan, while excellent foreign
professors do not want to come to Japan. For this purpose, it will
be necessary to expand the donation tax system and use it togenerate income beyond the budget from the government. Itwould also be necessary to improve the environment for teaching
English as an international language not only to the children offoreigners but to the public in general so it can improve its ability
to use English and better compete internationally.
The same logic applies to the government. The number ofyoung graduates who are willing to be civil servants has been
decreasing significantly in the last few years and the turnover rateof young civil servants is increasingly high. Here, too, thegovernment should consider eliminating the lifetime employment
and the seniority system and should appoint outstanding/deserving public servants regardless of their age or seniority.
Salaries should be comparable to those offered in the private
sector. It would also be essential to consider hiring all civil
servants through a National Personnel Authority rather than byindividual Ministry. Open and “at large” recruitment for strategic
posts would eliminate the negative development of verticallydivided administrations.
I admit that the introduction of these broad-based competitions
will create disparities. It cannot be denied. However, in addition
to strengthening Japan’s industrial competitiveness, a shift awayfrom lifetime employment and seniority-based systems in those
three sectors (industry, universities, and government) would leadto a radical turnover of the Japanese labor market. It would allowthe right person to be hired for the right job and would create adynamic workplace that is suited to enhance competition. We
must optimize the utilization of our human resources.
Of course, to facilitate the introduction of such competition andeliminate its negative effects, an “Evolutionary Industrial Policy”
should refrain from providing massive subsidies, while bothindustry and the government must invest in education andprovide a detailed safety net.
Masakazu Toyoda is chairman and CEO of the Japan Economic Foundation(JEF). He previously served as chairman and CEO of the Institute of Energy
Economics, Japan, after having been vice minister for International Affairs at theMinistry of Economy, Trade and Industry.
Japan SPOTLIGHT • November / December 20221