Japan Center for Economic Research
January, 2020

2060 Digital & Global Economy

JCER, Japan Center for Economic Research, the Japan's leading think tank, predicts theglobal economy in 2060, focusing on digital technologies that continue to evolve and have a
disruptive impact on the economy and society. We illustrate the results in series.

Lead Economist,
Principal Economist,

Sumio Saruyama*
Kengo Tahara

4. De-manufacturing will progress in the world.
Digitalization is changing the landscape of industry. Services that people have provided
face-to-face will be automated in the future, and the frontier of digitalized services willexpand. A change has already appeared in "Quasi-digital industry," which might be calleda leading indicator of digitalization. Let's explore the future of industrial maps.
"Quasi-digital" is on the track of expansion
In the future, Artificial Intelligence (AI) and robotic automation will spread in various
situations. However, it is still difficult to see direct consequence of AI and robots fromcurrent statistics. What is observable for now is the expansion of Digitally DeliverableServices(DDS). This refers to services that can be provided by digital mechanisms ormedia in which people can also be directly involved.
Share of Digitally Deliverables and Entire Services
100

Share of Services, %90Japan80

USA7060

Slope close to 1for recent years

5040ChinaUKSweden

30200102030
Share of Digitally Deliverable Services, %Source: World Input Output Database, Database of Groningen University
Note : The period range 1960-2014. Value added basis.

Organization for Economic Co-operation and Development (OECD) and the Bureau of
Economic Analysis (BEA), U.S. Department of Commerce start using DDS concept.
Since digitally implemented service is not strictly identified in their industry statistics,
OECD and BEA treat information and communications service, publishing/video service,*

Email: saruyama-at-jcer.or.jp

102060 Digital & Global Economy
Japan Center for Economic Researchfinance service and professional service as DDS service. In line with that classification,
DDS service measured by the World Input Output Database(WIOD) and the database ofGroningen University, Netherlands, is growing in many counties.
As its share increases, the share of the entire services also tends to increase (Figure). In
recent years (The closer to the top right of the figure), both increments have become closer
to a one-to-one relationship. In developed countries where the existing service market ismature, the new demand comes from DDS. That is presumably the reason why the ratioof the increase in service share to the increase in DDS share approaches one. DDS canmeasure the progress of the "digitalization". In countries where DDS is growing, theproportion of service industries is also likely to increase.
Manufacturing will be less than 10% in the U.S. and the U.K.
Let’s take a look at how the industry structure will change towards 2060 and how therelative size of the service and manufacturing industries will change.
Here's our forecast flow: with the accumulation of intangible assets, the quasi-digitalindustry will grow, which will further increase the share of the service industry. Figureshows our forecast results.
Forecast of Manufacturing Ratio
40

Share of Manufacturing, %35
Japan

30

USA

25

China

20

India

15

Germany

10

UK

50
1960

SwedenForecast
1980

2000

2020

2040

2060 Year

Source: Japan Center for Economic Research, Long-term Forecast, December 2019

In the U.S., the U.K., and Sweden, the leading countries in digitalization, the service
industry ratio will reach 90%. Behind that, the manufacturing sector is shrinking, with its
ratios falling below 10% in the U.S. and the U.K. Primary industry will account for theremaining few percent. In Japan and Germany, manufacturing will remain at a relatively

11January, 2020

2060 Digital & Global Economy
Japan Center for Economic Researchhigh ratio. Nevertheless, in Japan, the manufacturing share will drop from about 20%
today to about 15% in 2060. In China, the share of manufacturing has been above 30%
today, but it is likely to decrease to the low 20s by 2060 as services further expand.
The share of services in India, which is ahead of China in terms of service growth, willreach about 80%. However, India’s manufacturing industry would remain at a phase ofgrowth as its low wage level works favorably to the expansion of manufacturing. Its
manufacturing share is expected to be flat. In India, primary industries are still heavily
weighted, and a shift from agriculture to services is taking place.
Digital transformation drives CO2 reduction.
The digitalization of the economy, along with the shrinking population and the shrinking
manufacturing industry, will help reduce carbon dioxide (CO2). The source of value shifts
from tangibles, such as materials and energy to intangibles, such as data. Japan has been
criticized by the international community for de-carbonizing too late, but our forecast
predicts that in 2050 Japan's fossil fuel consumption will fall by 60% from 2013.
Our simulation indicates that the Japan’s national target of "80% decrease by 2050” canbe achieved with the introduction of an environmental tax of about 10,000 yen per ton of
CO2. This is because the environmental tax encourages the introduction of renewableenergy and carbon capture and storage(CCS). We presume if the tax rate is raised to20,000 yen, it would likely to reduce CO2 emissions to zero in 2050.
How to Achieve Zero-Emissions for Japan（ＣＯ２ Emissions, Mil. ton）
1400
2011
1200
StructuralChanges

1000
800
600

2050

ＣＯ ２

▲60%

De-Carbonization
by tax▲80%

Zero-CO2
Captured by CCS

400200

ＣＯ ２

Renewable Energies

ＣＯ ２0(1)
BaU

(2)
(3)
Carbon Tax Carbon Tax\10 Thous. \20 Thous.

Induced by Output
Reduction

Source: Japan Center for Economic Research, Long-term Forecast, December 201912January, 2020

2060 Digital & Global Economy
Japan Center for Economic Research

We can reduce our CO2 emissions by 10% by simply switching our current energy tax toan environmental tax while maintaining our tax revenue. There is little adverse effect on
economic growth. In Japan, the energy tax mainly involves gasoline, diesel and otherautomotive fuels, and places less focus on CO2 emissions. In fact, at present, the rate ofenvironmental tax levied on CO2 content is only 289 yen per ton. If we switch to an
environmental tax, it is possible to get the same tax revenue as today, but on average alower tax rate. Japan should promote green energy taxation.

13January, 2020