Event Report: The Digital Transformation and Japan's Political Economy
On February 6th, the Centre for the Study of Global Japan hosted Kay Shimizu, Research Assistant Professor in the Graduate School of International and Public Affairs at the University of Pittsburgh. The event began with opening remarks by Phillip Lipscy, Director of the Centre for the Study of Global Japan, who introduced Professor Shimizu’s book, The Digital Transformation and Japan’s Political Economy, written in collaboration with Ulrike Schaede.
Professor Shimizu began by discussing the intersection between politics and economics and the effect of the digital transformation on productivity. She emphasized how Japan was often seen as the land of cutting-edge technology throughout the 1970s and 1980s, with the notion that Japan had experienced an economic miracle. However, this perspective shifted in the 1990s, as Japan stagnated and fell behind in technological advancement, falling to 32nd place on the World Digital Competitiveness rankings.
Despite the seemingly pessimistic perspective on Japan’s technological competitiveness, Professor Shimizu emphasized that there is an alternative perspective. She argued that Japan is not as far behind as the world believes and will be able to find success with the digital transformation. The rapid growth of Artificial Intelligence (AI) and Large Language Models (LLMs) has created fear among many workers who feel that their jobs may be threatened by new digital tools. The situation is further complicated by Japan's aging population, labor shortages, and declining competitiveness, all of which amplify fears around job displacement. However, Professor Shimizu argued that Japan can avoid political clashes and labor protests by using technology to supplement the shrinking workforce rather than fully replacing it.
Professor Shimizu highlighted how the digital transformation represents a fundamental shift in economic activity, moving away from traditional industries like agriculture and manufacturing towards technology-driven sectors. She noted that Japan is in the midst of a “lucky moment,” with a rare opportunity to adapt to digital transformation in ways that could mitigate its challenges. Japan’s large corporations are better positioned to navigate these changes, offering flexibility in hiring skilled workers and diversifying employment. However, less than 30% of workers are employed by large corporations, and less than 5% are considered highly skilled. Small and medium enterprises (SMEs) face challenges such as the cost of technology, difficulty hiring specialized talent, and uncertainty in the digital transformation market. Despite these challenges, SMEs could benefit from digital transformation by increasing productivity and attracting new workers.
While Japan’s labor force is growing, this growth is reliant on part-time workers, particularly women and the elderly. Shimizu suggests that digital transformation could alleviate labor shortages, allowing people to stay in the workforce longer. However, this will require significant investment in reskilling and the ability to adapt to new work models. Professor Shimizu concluded with a discussion on the socio-economic inequalities and challenges Japan faces, including the need for immigration reforms and public sector innovation to support the digital economy.
Following Professor Shimizu’s presentation, a lively Q&A session took place. Among other topics, audience members asked questions regarding the effect of the stickiness of Japanese bureaucracy as well as the geographical distribution of the benefits of the digital transformation.
We would like to thank Professor Shimizu as well as the engaged audience for their active participation.
