## (1) Significance of ICT's boost to enterprise productivity

### a. History of ICT investment by Japanese industry

The long period of growth by the U.S. economy in the 1990s has been attributed to the enlargement of capital investment, particularly ICT investment. The transformations during this period that rivaled the Industrial Revolution in scale were dubbed the ICT Revolution by some. In other words, the influence of ICT investment went beyond its direct impact on business conditions in terms of demand. It affected supply structures and contributed to increases in capital stock and total factor productivity (TFP). $ ^{1} $ As such, ICT investment has been pointed to as key in boosting labor productivity across the entire economy as well as raising the labor productivity, through the application of ICT, in ICT “user” industries.

Japan, on the other hand, remained sluggish throughout the lost decade of the 1990s after the collapse of the economic bubble. Capital investment did not accelerate or generate sufficient opportunities for future growth. A closer sector-by-sector examination by Fukao et al. (2015) found the Japanese ICT “maker” sectors experienced productivity growth widely surpassing that in the U.S. and other developed countries. Indeed, ICT turned into one of the most important industries driving the growth of the Japan economy since the 1990s. However, in ICT “user” industries (such as the distribution industry and service industry), ICT investment has not accelerated and productivity has languished.

Also of interest is that Japanese enterprises have largely used ICT investment as a means of boosting operational efficiencies and cutting costs. It has been pointed out Japanese enterprises have much lower expectations than their U.S. counterparts regarding ICT investment assisting with enhancing product and service development, transforming business models, applying new technologies, products, and services, and similar benefits. These differences in how ICT investments are approached may be why ICT investment in Japan has failed to increase added value the way it has in the United States.

### b. ICT-driven productivity increases in the IoT era

Japan’s Declaration to be the World’s Most Advanced IT Nation states in its Basic Principles that “IT strategies are the pillars of growth strategies” and that “the society Japan should seek to become” is “a society that encourages the creation of new and innovative industries and services and the growth of all industries.” In the IoT era, big data, and AI, which are expected to be used and applied in many fields, Japan must make use of past lessons and raise productivity by, namely, considering ICT-related investment and application of ICT as 2 sides of the same coin.

## (2) ICT-related investment

### a. Overview of economic contributions

There is no general accepted definition of ICT investment's scope. In recent years, intangible investments have been singled out as a key factor in raising productivity. ICT investment certainly encompasses a wider range of things than just hardware.

For this chapter, we take ICT investment to comprise hardware, software, ICT services, and other aspects, which includes the assumptions used in the survey of enterprises. Looking at recent transitions in ICT investment finds a slight upward trend in overall (nominal) investment amounts, according to an analysis based on the ICT industry's input-output table. A breakdown of the figures shows a gradually increasing portion of this investment going to information and communications goods and services, reaching approximately 18 trillion yen in 2013 (Figure 1-2-2-1).

One change in ICT investment since 2000 has been a shift first from hardware to software and then to services. Results from questionnaires underscore this trend (Figure 1-2-2-2). In particular, the barrier to ICT investment has been lowered for many industries and SMEs in recent years, with further ICT commoditization — for example, falling unit costs for server storage — and the proliferation of cloud computing. In addition, virtualization and other technologies are pushing ahead processing power and quality and even contributing to produc-

Figure 1-2-2-1 Transitions in ICT investment amounts

(Source) "ICT Industry's Input-Output Table Report for 2013," MIC