ed.

(i) A lack of awareness that digitization leads to the creation of value

(ii) Funding restrictions, and a lack of maturity in BPO (Business Process Outsourcing) markets

(iii) A lack of broader Sense of investment (macroeconomic intangible asset investment, organizational reforms and human capital investment etc.) to accompany ICT investment.

In relation to the first point (a lack of awareness that digitization leads to the creation of value), there is a tendency in Japan to view ICT as a means to improve efficiency and reduce costs. When asked about the status of IoT introduction and future plans for introduction, broken down into processes and products, the facts that there was a greater focus on processes, and that, as mentioned below, a Japan Development Bank survey in 2016 showed a high proportion of respondents stating that the purpose of IoT investment was to “Reduce labor and improve productivity” also speak to this tendency.

In terms of the second point (funding restrictions), Fukao, Ikeuchi, Kim and Kwon (2015) state that in prior research outside of Japan, it is noted that larger companies and younger companies tend to adopt ICT more easily, and explore the ways in which the scale and age of a company affects ICT investment. Japan, since the data shows that small companies and older companies make up a higher proportion of the economy than in other countries. They conclude that larger companies do use ICT at greater levels, but that there was no clear link between the age of a company and its use of ICT. The production coefficient is different for corporate scale and the age of the company, and smaller companies and younger companies have higher ICT marginal productivity; in other words, ICT investment has remained at a lower than optimum level. Furthermore, the authors say, certain obstacles are limiting the use of ICT within Japanese companies. Examples given of obstacles are funding restrictions, and a lack of maturity in BPO (Business Process Outsourcing) markets.

In regard to the third point, an indicator of a broader sense of investment (macroeconomic intangible asset investment, organizational reforms and human capital investment etc.) to accompany ICT investment is TFP (Total Factor Productivity). Based on Fig. 3-4-1-2 above, TFP was lower in Japan compared to the US, in particular between 1999 and 2004, by about 1% point per year, indicating that a broader sense of investment in Japan was insufficient compared to that in the US, and that economic growth equivalent to that in the US has not been achieved.

When considering a broader sense of investment (macroeconomic intangible asset investment), it is believed important to look at historical precedent. In the areas of electricity, automobiles and computers, which are examples of general-purpose technology, societies have undergone significant changes that were late in rolling out such technologies $ ^{22} $ . From a different perspective, during the period of change between old and new technologies, not only do old and new technologies exist together, but also other facilities, human resources, work flow, organizational structure and other various social structures continue for a while to be influenced by old technologies, and it can take between decades and several generations before the benefits of new technology begin to significantly improve productivity and realize economic growth. Furthermore, at times of decline in old technology, the economy has often suffered and unemployment risen, but in the medium- to long-term, new technologies lead to new industry and employment. General purpose technologies have never been widely accepted at their earliest stages, but it is important to learn from the fact that the utilization of general purpose technologies, including the accompanying reforms to organizational and social structures, has clearly led to economic growth only in regions and countries where it has led to improved productivity. In comparison with the time base for new technological change, it is clear from history that the response of human resources, organizational structures and social systems requires a longer time period, and that in order to improve productivity, measures are required, possibly through the introduction of IoT or AI, to improve the response speed of human resources, organizational structures and social systems.

## Section 5 Comprehensive Analysis of the 4th Industrial Revolution

### 1. Data-driven Economic Growth

In order to create value and solve problems in an age where IoT/AI introduction and the utilization of data has become significant, it is necessary not only to learn the lesson from history that both ICT investment and a broader sense of investment is required, but also to consider the characteristics of data within the worlds of IoT and AI.

## (1) ICT Investment and Broader Sense of Investment

ICT investment has moved from hard to soft and then