COVER STORY • Digital Society — Issues & Challenges • 4E

xamining“Multiple Rules”
in a Country

By Noriyuki YanagawaAuthor
Noriyuki Yanagawa

This article was originally published in Japanese for the column “School of Economics” (KeizaiKyoshitsu) in the Nihon Keizai Shimbun (Nikkei) on March 12, 2018, and has been translated into
English by the Japan Economic Foundation for Japan SPOTLIGHT, with approval from both the authorand Nikkei.
The Age of Innovation
There is no doubt that contemporary society is exposed to a big
wave of technological innovation and we do not need to use acatchphrase like the “Fourth Industrial Revolution” to attract people’sattention to this phenomenon. There are so many topics flying
around concerning new technologies such as artificial intelligence(AI), driverless cars, virtual currencies and bitcoin or blockchain
technology. These new technologies are already becoming routine
and thus everybody knows about their significant influences upon
our economy and life.

New Technologies & Social Rules
With such remarkable innovation in progress, one of the key
issues will be how to adjust our rules, laws and regulations to newtechnologies. Because no matter how excellent the new technology
is, we will need established rules for its recognition in order topractice and implement it in our society. It is also true that in recent
years rules themselves often rely on new technologies. For example,
building up a regulatory framework by taking advantage of theinformation obtained through the Internet of Things (IoT) where
many goods are connected by the Internet, or accumulation ofadministrative data by taking advantage of blockchain technology are
already under study. However, in many cases, we cannot fully predict
how new technologies will affect social or economic activities. Even
if we can predict it, in not a few cases the people being possibly
disadvantaged by new technologies or rules would oppose theirintroduction. Thus it will not be easy to create rules relevant to newtechnologies and implement them. In considering this, we recently
came across the new concept of a “Regulatory Sandbox”. This is aframework in which we would study the impact of an experimental
regulatory reform as if it were done as an experiment in a sandbox. Ithas started to be introduced in a wide range of forms by many
countries including Japan. But one difficulty that has been pointed
out is that we cannot make progress on this without companies
attempting to be actively engaged in such experiments and thus
16 Japan SPOTLIGHT • November / December 2018

without such companies we cannot afford to create rules that could
strongly promote innovation.
It is true, on the other hand, that well-devised rules are key toachieving a country’s international competitiveness. In fact, in ourworld today, it is not only companies that are exposed to serious
international competition but also nations themselves under serious
competition for good institutions.
Investors, firms and even individuals as well will occasionally beconcentrated in countries or regions where the rules enabling themto find it easy to work are well accommodated. For example, in
Arizona in the United States many companies experimenting withdriverless cars are now setting up offices or subsidiaries, since
Arizona has prepared regulations to make it easy to trial a driverlesscar. There are, of course, other geographical reasons for this such as
the availability of many roads for implementing experiments withdriverless cars. Their regulations, in addition, were instrumental in
attracting not only US domestic companies but also companies fromall over the world. Judging from this, we can see that a willingness to
implement institutional reform in accordance with innovation is
crucial not only in terms of securing a nation’s or a firm’s
international competitiveness but also for the introduction of better
technologies into our society.

A Policy to Achieve Institutional Reform
What would be the necessary policies to achieve institutional
reform in accordance with innovation? One policy could be toprepare multiple rules within a nation. With this, inside the nation
there would be competition among the plural rules and this could
result in better rules being provided and a few of them could win theinternational institutional competition among nations (Chart).
Such an idea may look rather unusual for the Japanese, who areused to national governance by a single rule in Japan. However, it is
not so unusual worldwide. In the case of the US, for example, under
their federalist system, rules differ from state to state. Each state canhave its own distinctive rule system. Arizona’s particular rule in favorof experiments for driverless cars has made Arizona a frontrunner inhttps://www.jef.or.jp/journal/

COVER STORY 4

CHART

An image of “multiple rules in a nation”
A Nation
Multiple rules preparedABC

Realizationof diversity

Realization of institutional innovation
The era of international competition
among rules

Institutional innovation has become a key to taking
full advantage of the merits of innovation
Rules adjustedto innovation

Rules integrating
innovation

InnovationSource: Compiled by the authorthat field. There are, of course, ample possibilities for other states tocompete against Arizona in creating a better rule for experiments fordriverless cars. In another field, Delaware has its own rule forcorporate governance, clarified by its Companies Act. This legislation
works well in attracting many companies to Delaware, at least interms of registration.
There are many other nations that adopt federalism besides theUS. China, for example, allows each province a certain degree offreedom in setting up independent rules, contrary to our image that
China is ruled by a strongly centralized political system. In particular,Shenzhen, designated as a “special district”, has different rules fromthose in Beijing. One of the merits of multiple rules in a single
country is, as mentioned above, that competition would be anincentive to improve. Another merit is that co-existing different rules
would meet a variety of needs. We are living in an era oftechnological innovation but also living in a world of diversity. Ourvalues are diversified and diversity is being pursued in working
styles and lifestyles. Therefore, we can build up a social systemmeeting a variety of human needs by realizing institutional diversity.
In modern times, Japanese society has proceeded rapidly in one
direction, because it has been a society characterized as one with asingle target — namely to catch up with Western nations. In such acase, diversity has not been considered an important value, and thus
as individuals we have been asked to do our best to run in the same
direction without having a different view from others or being
engaged in different activities from the one pursued by the average

person. But now is different, in the sense that the realization ofdiversified values is being widely considered, and therefore adiversity of rules will also be required in accordance with this trend.

How Can We Achieve Multiple Rules in Japan?
Meanwhile, it is true that it will be difficult at this stage in Japan to
explicitly approve multiple rules that are very different from eachother. This is because the integration of the nation has been assured
by common and unified rules. In addition, for example, if each local
autonomy were to independently adopt a different IT system, therewould be enormous costs for the integration of those systems orcreating exchangeability among themselves. This is anotherdifficulty.
In spite of these difficulties, even in the current situation, there are
more cases than we could imagine where some local areas’
indigenous regulations, differing from those of other regions, areaccepted in Japan. It would be more realistic to have more effective
use of these and thus achieve more diversity among rules in Japan.
A National Strategic Economic Zone must be one of those cases.
This is a concept in which certain deregulations or institutional
reforms are experimentally accepted in certain limited regions. The“Regulatory Sandbox” that I mentioned would be further introduced
as well into this special zone. However, both “National StrategicZone” and “Regulatory Sandbox” are mainly aimed at acceptance of
deregulations as an exception and not to build up a different rulesystem to be accepted universally. Hereafter, then, we will need tothink more actively about building up a diversified rule system inaccordance with the idea that we must continue institutionalinnovation.
Also in Japan, though not so much as in nations with federalism,
apart from a “National Strategic Economic Zone”, a certain degree offreedom in establishing a unique rule is even now allowed underlocal autonomy. Then, there is even now a certain scope in policies
where local autonomies could formulate rules independently. In thislight, even in the existing legislation in Japan, there could be acertain legal framework enabling us to achieve multiple rules.
Therefore, we can take advantage of this framework more actively
and with a number of alliances among those local autonomies
positive about independent rules, they could achieve unique andindependently devised rules.
This would provide local regions with renewed economic vitality
not only in the sense that they could take more positive advantage ofinnovation but also in the sense that they could provide rules
adapted to meet a wider range of local industries or people’s needs.
Noriyuki Yanagawa is a professor of the Faculty of Economics at theUniversity of Tokyo.

Japan SPOTLIGHT • November / December 201817